Hong Kong co-working operators set to raise rates as consolidation weeds out weaker rivals
- Monthly rent of US$741 for 60 sq ft of co-working space in Hong Kong already the highest among 14 cities in Asia-Pacific
- Colliers sees consolidation in the co-working segment as overexpansion has made it unprofitable for some players.
Rents for co-working space in Hong Kong, already the most expensive in Asia-Pacific at US$741 per month, are set to rise further as the sector undergoes another wave of consolidation even as uptake slows, say industry operators.
According to the latest report from property agency Colliers, Hong Kong, with 141 shared office centres, topped 14 other cities in the region in terms of average desk cost per month, followed by Beijing at US$693, which has 45 co-working centres and Sydney, with 58 centres, at US$690.
Based on Colliers’ average grade A office rent of US$10.08 per square foot per month in Hong Kong, a desk occupying about 60 sq ft, would cost operators US$604, translating to gross earnings of US$136.2 per co-working desk in the city.
Thomas Hui, CEO of co-working space operator theDesk, said the premium rates that companies charge in the city are reasonable because they lease space in the world’s most expensive office space.
“I think the trend will continue to move upward especially in prime business locations as office rents in the city are also going to increase further,” he said.
He added a likely consolidation of co-working operators would lead to less competition and consequently further price increases.
Colliers too expects more mergers and acquisitions in the segment as an overexpansion has left some operators unprofitable and companies from outside the region seek a share of the Asia-Pacific market.
Hong Kong developer Chinachem sues co-working operator Kr Space for failing to execute One Hennessy lease
“Longer term we expect the sector to consist of four to five global operators, some with multi-brand strategies to capture specific market segments, together with a range of smaller local and regional players,” Colliers said in the report.
In 2018, US-based WeWork acquired Shanghai-based Naked Hub for US$400 million, while Beijing-based Ucommune acquired seven operators on the mainland.
Some co-working operators meanwhile are struggling. Chinachem Group has launched a HK$500.9 million (US$63.8 million) legal action against Beijing-based KrSpace for reneging on a five-year contract, signed in 2018, to take up seven floors at a Wan Chai building.
Reed Hatcher, director and head of research at Cushman & Wakefield, said the recent overexpansion in the segment would make revenue-generation challenging in the near term.
“The pace of growth is unlikely to be as rapid as the past year as competition increases and the sector begins to show signs of maturing. At the same time, some consolidation is inevitable as some smaller players are likely to be squeezed out,” he said.
In 2018, a record 900,000 sq ft of new flexible workspace was transacted in Hong Kong, increasing the total space in the sector by 35 per cent, with landlords such as Hysan Development and Swire Properties increasing their exposure to flexible workspace.
“We anticipate around 800,000 sq ft to transact in 2019, if Hong Kong Island and Kowloon are counted collectively, with a little over half of this in grade A buildings,” said Sam Harvey-Jones, managing director for occupier services at Colliers Asia.
Next year, take up of co-working space is forecast at 400,000 sq ft as the “sector becomes more focused on demand-led expansion”.
Sidharth Dhawan, head of agile real estate for Asia-Pacific at CBRE, expects a new trend to emerge where landlords will not only lease space to flexible space operators, but also allow third-party providers to operate building amenities themselves.
“While more flexible space operators are becoming receptive to forming partnerships with commercial property landlords, the coming years may see them more actively seek such opportunities as they look to go asset-light, slash the large upfront [capital expenditures] required to open new centres, and significantly reduce rental overheads,” said Dhawan.
