Call it the WeWork effect.
China’s largest office developer, Soho China, is branching out into the shared office market in an attempt to wring more profits out of China’s overbuilt office market.
The Beijing-based developer — which owns a sizable stake in New York City’s GM building — has made the shift over the past 18 months, according to the Wall Street Journal. Long-term leases drive the majority of the company’s revenue, and the shift for the Chinese developer comes at a time when the company’s profits are shrinking and and China’s economy has slowed.
Sign up for China Watch, for weekly emails on Chinese real estate investments.
“We’ve been searching for the next growth area,” CEO Zhang Xin told the Journal, referring to a period of rapid building that has slowed. “Cities are built, buildings are done.”
Soho China currently has 16,000 desks it is leasing in Beijing and Shanghai through its coworking brand, known as 3Q. While there are no immediate plans to bring the concept stateside, Zhang outlined a plan to ramp up the coworking strategy in several new markets, and said the company’s existing office space gives it a leg up, which will allow it to scale quickly.
In China, WeWork recently opened its first location last month with 500 desks and quickly leased all of them. There are about 100 other competitors in the market.
But not everyone thinks coworking is sustainable. “The entrepreneurial drive is strong in Beijing, but it remains to be seen if it could be just as strong in other cities,” cautioned Stephanie Lau, an analyst at Moody’s Investors Services.
Zhang disagreed. Five years from now, this kind of young, high-growth—hypergrowth—company, there will only be more of them, not less of them,” she said, referring to internet and tech startups that often lease co-working space.
“This is a business you have to go for scale,” she said. “We know who the users are, we need to go where they are going.” [WSJ] — E.B. Solomont