Squeeze is on forco-working firms

Property | Staff reporter 28 Feb 2019

Co-working spaces are seeing market saturation, especially those in Sheung Wan and Lai Chi Kok, where some companies show an occupancy of only 50 percent. A business insider said this industry will enter into a correction period in the next three years and that it will cause 90 percent of small firms to collapse.

Hong Kong currently has 68 co-working space providers, with a total gross floor area of 1.3 million square feet, of which 70 percent are located on Hong Kong Island, according to a report by Cushman & Wakefield.

The industry had grown rapidly in recent years, together with fierce competition. Some entrepreneurs said the business environment has not met their expectations.

A spokesman for co-working space provider Owl Square said some operators in Sheung Wan and Lai Chi Kok are reporting half-empty premises.

Ms Wong founded her co-working space company, Circoop, in Sha Tin six months ago, with expectations of high market demand. However, most of her choice spots have yet to be leased, forcing her to step up her advertising efforts and reduce prices to attract customers.

Chapman Leung, cofounder of Bloom, also slashed prices by up to 40 percent after finding there was an abundance of co-working spaces in the market but relatively slow growth in the number of users.

Campfire and The Desk are co-working space providers that were set up in 2016. Campfire's founder, Albert Fung, said the surge in supply is due to the low threshold of capital needed to enter the industry.

"It requires only a renovation fee of HK$1 million to HK$2 million for the landlord to set up a co-working space, so some would start their businesses without planning ahead, which is unhealthy for the industry," Fung said.

The Desk's chief executive, Thomas Hui, said co-working spaces is an emerging industry, which makes it easy to raise funds in the market.

Trend seekers would then build their businesses, while some do it to show off.

"However, co-working space is no longer a trend, and these types of owners have no idea how to run long-term businesses," Hui added.

Meanwhile, large foreign enterprises have entered the industry, triggering fierce competition. Mark Chan, who established R One last year, said these enterprises can offer eight floors of co-working offices, with an area of 100,000 square feet, "which puts pressure on small-sized co-working spaces."

Chan added that large companies sometimes utilized the "loss leader strategy" by cutting prices to increase their market share in Hong Kong. However, this resulted in several small companies collapsing after seeing discouraging business prospects.

Chan believes the industry has entered a "survival of the fittest" correction period. He predicts 90 percent of the small-sized co-working space firms will collapse in the next three years.

"Co-working spaces in Hong Kong will not see a drastic drop in their size, but it is probable that only a few large-sized providers will remain," he said.

Some small operators plan to form joint ventures in this severe environment. Chan said such partnerships can achieve resource efficiency. R One has been invited to form a partnership, but deals have yet to be reached.

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