Shared Offices in China for $109 a Week Target Startup TenantsBloomberg News
Demand from smaller firms to help alleviate office vacancies
Soho China, Vanke, Sino-Ocean Land offering co-working spaces
Chinese real estate developers, struggling with a widespread glut of office space, are pursuing a new type of tenant: Startups seeking shared work facilities.
Soho China Ltd., which plans to expand the number of desks in its shared offices almost 10-fold in the next three years hosting companies such as Uber Technologies Inc., last week signed a deal with Greenland Holdings Corp. to help convert the latter’s properties into co-working spaces. Sino-Ocean Land Holdings Ltd. in September unveiled a similar plan as part of a new complex in eastern Hangzhou, and China Vanke Co. is wooing e-commerce startups to its projects in the southern city of Guangzhou.
At Soho 3Q’s project on The Bund in Shanghai, single-person desks are available for 700 yuan (about $109) a week, with free Internet connection, Wifi, some storage and coffee, while separate six-people offices are offered for 5,460 yuan a week, according to company’s website. With CBRE Group Inc. predicting 1 million square meters (10.8 million square feet) of new office supply to hit the market in Shanghai alone next year, catering to cost-conscious startups offers developers a way to stave off a potential glut.
"Emergence of shared offices is in response to the recent rapid development of new start-up companies and the government’s policy to encourage more entrepreneurial companies,” said Frank Chen, Shenzhen-based head of China research at CBRE, adding that such tenants over time may fuel demand in traditional prime locations.
Premier Li Keqiang, seeking to rejuvenate flagging growth, has pledged to create more startups with his new-economy push called “Internet+”. That promises to boost the share of the nation’s high-tech work force that prefers to work in shared spaces provided by the likes of WeWork Cos., the New York-based office-sharing company part-owned by JPMorgan Chase & Co. and Harvard Management Co.
“What is really changing in China at present, under the growing impact of Internet+ technologies, is the basic structure of employment,” Andrew Ness, Cushman & Wakefield Inc.’s head of research for greater China, said in an e-mail. Builders like Soho China “will be able to leverage on the full force of the emergence of what is effectively a new stream of office demand.”
In second-tier, or less economically important cities, a widespread glut helped push rents down 0.2 percent, while vacancy rates in some cities hovered between 30 percent and 40 percent in the third quarter as the economy slowed, CBRE said in a third-quarter report.
In bigger cities, the impact on the rental outlook of major office markets may be negligible, for now. Startup tenants are “highly sensitive” to rents, suggesting that shared offices won’t spring up just yet in traditional prime locations or impact rents, CBRE’s Chen said.
Some 14 million startups will be created in China next year, generating demand for more than 420 million square meters of shared work space, assuming an average of five employees per company, according to Wang Chen, a Beijing-based analyst at Essence Securities Co. That’s about 100 times the new supply of grade-A offices in the first-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou for 2016, according to Cushman & Wakefield estimates.
Soho China, the biggest landlord in Beijing’s central business district, wants to boost the number of desks in its communal offices in the city and Shanghai to 100,000 by 2017, mostly by converting its existing properties. The gross rental margin for Soho’s 3Q offices, as the company’s shared work facilities are known, is higher than that of Soho China’s traditional offices, Chairman Pan Shiyi said.
The developer has been focused on offering co-working spaces on its own properties in the big cities and now it’s starting to work with companies around the country, Pan said. Soho China and Greenland will jointly develop shared offices in Greenland’s properties in major Chinese cities, with Soho China designing and managing them, according to the statement Dec. 2. Greenland had about 1.6 million square meters of properties for lease as of Sept. 30, it said.
Sino-Ocean Land’s shared-office project allows tenants to share information and socialize. It’s part of a new complex that also has Grade-A offices, a shopping mall, apartments and a hotel in Hangzhou.
In Guangzhou, tenants including e-commerce startups and mobile app developers have filled up about 65 percent of the more than 100 desks at China Vanke’s first Cloud Space shared-office project since they began to move in in mid-July, according to marketing manager Zhou Xiaoli.
Vanke, China’s largest listed developer, initially leased open-space desks for 500 yuan a month to attract clients, but has raised the rent to 600 yuan as more clients came and may lift it further. “Demand was not bad,” Zhou said by phone.
— With assistance by Dingmin Zhang