Is more consolidation on the cards for China’s co-working office space market?

Mao Daqing, the founder and chairman of Ucommune, said mergers and acquisitions have helped accelerate growth at his three-year-old company, China’s largest co-working office space provider

PUBLISHED : Friday, 20 April, 2018, 7:00am
UPDATED : Friday, 20 April, 2018, 7:00am

Ucommune chairman Mao Daqing has predicted no more new players will enter China’s crowded co-working office space industry as the pace of consolidation picks up in the market.

Mao said this will remain the story moving forward, following a series of mergers initiated last year by Ucommune, the country’s largest co-working space provider, with domestic rivals Woo Space, Wedo Coworking and New Space.

“The merger of different platforms sped up our [growth], which was the most exciting thing for me in the past year,” he said on Wednesday as the company, formerly known as UrWork, marked its third anniversary.

Founded in 2015, Beijing-based Ucommune now has more than 100,000 individual members and 6,000 corporate clients at 160 locations across 36 cities, including Shanghai, Hong Kong and Singapore, as well as New York and Los Angeles in the United States.

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The company’s expansion strategy has put it on a collision course against larger US co-working space operator WeWork, which agreed to merge last week with Chinese rival Naked Hub.

WeWork, counted among the world’s most valuable start-ups at about US$20 billion, will pay about US$400 million for the three-year-old Chinese business, according to Bloomberg. The deal adds co-working spaces in Shanghai, Beijing and Hong Kong, as well as Vietnam, Australia and Britain to the portfolio of the New York-based firm.

Companies such as Ucommune and WeWork are flourishing because a rising number of young workers are opting for flexible working hours and a more relaxed working environment.

The rising number of technology start-ups bolstered by Beijing’s ambitious goal of turning the mainland into a global innovation powerhouse has created a strong demand for flexible offices.

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A survey by global property services company JLL found that 81 per cent of white-collar respondents in Shanghai now accept working in flexible offices, compared with 24 per cent at the end of 2013.

“An explosive growth of co-working offices can be expected as the authorities ramp up support for start-ups by offering them fast track listing approvals, and more young entrepreneurs set up their own shops,” said Daniel Yao, research director with JLL.

The global market for co-working office space is forecast to reach 30,432 locations and 5.1 million members by 2022, according to co-working conference organiser GCUC. Those numbers are up from 14,411 co-working space locations and 1.7 million members last year.

The GCUC estimated the Asia-Pacific to continue growing rapidly over the next five years, with China becoming the world’s largest co-working office space market by 2022.

Mao, the 49-year-old founder of Ucommune, said the sweeping consolidation in China’s co-working office space market will see only the biggest companies survive as new investments in the industry decline.

He said the country’s sharing economy saw plenty of investors and start-ups “trying to get a slice of the pie”.

But that frenzy dies down as soon as a couple of billion-dollar start-ups, known as unicorns, emerge in the market, he said.

Comparing the co-working space business with the once red-hot bike sharing market, Mao said “one is a moron if someone says he wants to do bike-sharing now”.

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Bike-sharing has been among the most prominent sectors that have seen weaker players drop out as funding dried up. The consolidation in bike-sharing followed that in ride-hailing, which saw fierce competition between rival platforms before Didi Chuxing emerged to take on and eventually acquire the China operations of Uber Technologies.

After kicking out Uber, Didi now faces a new challenge. Meituan-Dianping, the world’s largest on-demand delivery platform that is known as the Chinese Yelp, is expected to launch a national expansion of its ride-hailing business after debuting the service in Nanjing city in December.

The country’s sharing economy raised a record 216 billion yuan (US$34.4 billion) last year, an increase by more than a quarter compared from a year earlier, according to a report by the State Information Centre, which predicted that competition among platform companies will intensify and drive the number of mergers and acquisitions.

“Mergers and acquisitions in this business is quite normal,” Mao said.

In the country’s co-working space market, Ucommune’s string of mergers has helped lift its valuation to 11 billion yuan (US$1.7 billion).

The company has raised US$525 million in total venture capital funding, more than the rest of China’s co-working space providers combined, according to venture capital research service CB Insights.

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It is backed by a group of large multinational and Chinese investors, including Sequoia Capital, Zhen Fund, Noah Wealth Management and Sinovation Ventures.

Still, if history is any guide, one cannot rule out further developments for co-working space providers amid efforts by Baidu, Tencent Holdings and Alibaba Group Holding, the parent of South China Morning Post, to become more involved in the sharing economy.

Chinese bike-sharing start-up Ofo last month secured US$866 million in a new round of financing led by Alibaba.

Mao, a former vice-president at Chinese residential property developer Vanke and grandson of Beijing’s Great Hall of the People architect Mao Ziyao, said the co-working space market has been relatively outside the sphere of activity of the Chinese internet triumvirate known as BAT.

“We are not like the internet companies who must choose to side with one of these giants,” Mao said. “But we collaborate with BAT.”