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China Property

Soho China aims for asset-light business model by further selling its properties

Chairman of the property firm said except for two iconic Soho buildings in Beijing and Shanghai, he was willing to sell all of his existing properties

PUBLISHED : Friday, 07 July, 2017, 7:38pm
UPDATED : Sunday, 09 July, 2017, 12:33pm

Soho China, one of China’s largest commercial property companies, is expanding its co-working space business, as part of the broader drive to transform its business model into one that is asset-light and reliant on rental income.

In a press briefing on Friday, chairman Pan Shiyi, revealed that he will raise the desk number under his co-working space brand – 3Q – to a considerable level, without giving an exact figure. Currently, 18 3Q centres in Beijing and Shanghai offer about 17,000 desks.

Pan said the decision was a result of a year-long study in the US, during which he found disruptive technologies such as artificial intelligence, to have profoundly changed the way people and the economy work.

He said even an old-lined property company like Soho China had to ride the trend.

“Only those who adapt to sudden changes in life will prosper. So we have seriously re-examined our existing business model, and we’ll go asset-light,” Pan said.

The transformation to the asset-light model has involved successive asset disposals in the past months, including the sale of a Shanghai office-commercial project for 3.57 billion yuan (US$525 billion) in late June, and this week’s announcement of two more properties being put on the block.

Except for two iconic Soho buildings in Beijing and Shanghai, Pan said he was ready to part with all of his existing 21 properties.

Pan said while he would use the proceeds to fund the 3Q expansion and pay shareholders dividends, he won’t use the cash to buy new proprietary properties.

The expansion will mostly be in China’s second-tier cities, where Soho China will rent office properties to lease out to startups that prefer to work in a sleek shared environment, instead of an isolated office space.

Only those who adapt to sudden changes in life will prosper. So we have seriously re-examined our existing business model, and we’ll go asset-light
Pan Shiyi

By betting on China’s burgeoning but already crowded co-working space sector, Soho China will have to compete head on with other co-space companies, namely UR Work, Krspace, Wework, all backed by venture capitalists and have also expanded into many second-tier cities.

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“Competition among co-working space operators is intensifying as they open more centres, lease larger spaces and increase presences in prime areas, which is increasing real estate occupancy costs and squeezing margin,” said Cynthia Chen, an office specialist with CBRE Asia Pacific Research.

“It is fueling concerns over the longevity and viability of the sector, especially at current rate of rapid growth,” she said.

But Pan said he was determined to venture into this sector, encouraged by the strong performance of the existing 3Q centres.

It is fueling concerns over the longevity and viability of the sector, especially at current rate of rapid growth
Cynthia Chen, CBRE

Soho China has no plans to expand abroad.

“I don’t think any overseas city can compare with the GDP growth rate in any mainland city,” he said.

Pan had also spoken frankly of his botched attempt to sell a Shanghai property in March, a deal that implicated China’s capital controls, where he was unable to transfer proceeds from the sale abroad to buy foreign assets.

Soho drops plan to sell Hongkou property, snared by China’s capital control rules

Those remarks resulted in him apologising and writing a “self-criticism” letter to China’s State Administration of Foreign Exchange, he said on Friday.

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