Hong Kong property developers expand into co-working sector as demand for proper offices dwindles

Hong Kong's property developers are expanding to the co-working sector amid dwindling demand for proper offices, even though some major operators have surrendered office space or exited the city altogether.

"The serviced offices sector continues to evolve as landlords are now entering the market in direct competition with established players," said Keith Hemshall, Cushman & Wakefield's executive director and head of office services in Hong Kong. This is because small companies "will continue to consider serviced offices as an option to maintain flexibility and avoid upfront capex", he added.

The number of operators in the city has dipped slightly from around 15 during a market peak in mid-2018 to 13 now, while the number of centres has dropped from 39 in 2018 to 34 now, according to Knight Frank.

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US operator WeWork surrendered office spaces at locations such as the Harbour City complex in Tsim Sha Tsui, Hysan Place in Causeway Bay and Hopewell Centre in Wan Chai, while Chinese operator KrSpace exited Hong Kong, surrendering its space in Times Square.

All big companies are rethinking their space usage, with one eye on minimising costs, said Wendy Lam, the head of Eaton Club, a co-working space subsidiary of Hong Kong property developer Great Eagle Holdings. These companies are adopting a "core-and-flex" strategy, with their core teams located in offices around Hong Kong's Central district and others working from flexible workspaces, an approach that is more flexible and helps reduce capital expenditure.

The current economic climate suits the flexible workspace industry. "A lot of landlords are thinking about [expanding into the co-working industry]. It is possible they may open their own centres, because this model works," Lam said, adding that demand will increase.

Eaton Club said occupancy at its co-working spaces had stood between 70 per cent and 80 per cent over the past two years. It opened a fourth co-working space this year to capture demand from companies that have downsized or are adopting a more flexible real estate strategy. Its four centres cover 70,000 sq ft, with three of them located in Champion Tower in Central and in Langham Place in Mong Kok. It's newest space, in Great Eagle Centre in Wan Chai, measures 1,700 sq ft and has a capacity of more than 200 people. Spaces at the centre start at about HK$3,000 (US$387) a month.

Lam said the co-working space at Great Eagle Centre had not been opened to help Eaton Club's parent company, and that rent and lease terms had been negotiated at market levels.

Eaton Club reported year-on-year growth of between 20 per cent and 25 per cent in revenue and profit in the first half of this year, she added.

State-owned conglomerate China Resources opened CRB, or the China Resources Building Business Lounge, in October in a co-working space previously occupied by Regus following some renovation work. Regus vacated the premises at the end of last year.

According to market sources, property developer Hongkong Land was also going to open a co-working centre. It did not respond to requests for comment.

Other developers that have gone down this path include Swire Properties, which opened co-working space Blueprint in 2014 in its Taikoo Place property in Quarry Bay. The owner of the V Point commercial building in Causeway Bay too operates V-Co, a co-working space, after its operator, Campfire, walked away at the end of last year. Kerry Hotel in Hung Hom has collaborated with operator theDesk to run a co-working space left by its former operator. Henderson Land has transformed a space abandoned by WeWork in H Code, Central into CodeWorks, a co-working space it owns and operates.

Meanwhile, co-working operators such as Metro Workshop are offering spaces for as low as HK$2,500 a month for a hot desk in Wan Chai. Campfire even promises to match any lower qualified price that users can find, it said in an email.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.