Landlords, Operators & Tenants Share in Co-Working Success
Co-working operators look to expand in Hong Kong with mainland players nakedHub, Atlas and Ucommune adding to the mix of tenant options.
The timing for the expansion of co-working space in Hong Kong couldn't be better. A wave of new Grade A office supply will soon hit decentralized districts that may be ideal for concepts that are looking for scale.
"The concept of co-working is really taking hold under the current market environment," says Denis Ma, our Head of Research, Hong Kong. "Everyone is trying to use real estate more efficiently."
Co-working space accounted for 10% of new lettings on Hong Kong Island in 2017. Co-working facilities already occupy 560,000 sq. ft. of the city's Grade A office space. Add Grade B and industrial stock to the mix, and that number is closer to one million sq. ft. Most activity so far has focused on Central, Sheung Wan and Causeway Bay.
With better infrastructure and lower rents, there will be a massive expansion in co-working space in decentralized districts such as Wong Chuk Hang and Kowloon East in 2018, predicts Michael Glancy, a Director with our Hong Kong Markets team.
We Work became well-known in Hong Kong after it leased three floors to HSBC. There is just one example of a growing trend of MNCs exploring co-working solutions globally, including Microsoft in New York, Airbnb and Alibaba in Seoul and Beijing respectively. Now other operators are widening their net to target MNCs, not just start-ups.
"The enterprise model will be a driver of growth in this market," says Glancy.
These bespoke enterprise solutions deliver dedicated premises with high spec designs that can often be tailored to suit tenants' needs. The challenge for providers is striking a balance between meeting the requirements of the MNCs while providing enough space to enable a community-style work environment.
"Right now, cost is holding back the growth of the enterprise model here in Hong Kong," explains Ma.
This situation, however, could quickly reverse following the completion of new supply and the opening of new public transport infrastructure that will bring decentralized areas closer to the city's commercial core.
The SMEs that collectively employ half of Hong Kong's workforce are another potential source of occupants that has largely been untapped by co-working providers, points out Ma.
Large or small, for co-working operators to stay in business they must differentiate their service offerings to improve the user experience—be it through enhanced amenities, technology, regional and global networks, industry specialties, or co-education.
The competition is heightened now that heavyweight mainland Chinese players have entered the market. Buoyed by the popularity of co-working on the mainland, naked Hub, Atlas and Ucommune have brought their concepts across the border to take on the likes of WeWork, the Hive, SPACES and CAMPFIRE.
Glancy believes the competition will trigger consolidation in the city's co-working market in the medium term, as existing operators already number in the double digits. He expects to see merger and acquisitions before the end of this year.