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China

Co-working in China: meeting practical needs


​​Co-working, in its various forms, has taken the market by storm in China. While co-working has become something of a global sensation, in China – where boundless entrepreneurial spirit feeds into demand for co-working space – it has taken on a distinct form with local characteristics. So, what are the special characteristics of co-working operators in China? And what is the opportunity for landlords?

​Co-working 101

As it exists outside of China, co-working aims to achieve the following:

  • A more social and inspirational environment than a home office or business center
  • Open exchange of ideas and open dialogue in a stimulating environment that is friendly to young people
  • Efficient and flexible use of space
  • Touchdown space for mobile workers who travel, and use the operator's space in cities they visit
  • Overflow space for overcrowded offices

From these original objectives, global players have emerged with dozens of locations around the world. These operators are offering a premium product, with comfortable interiors, extensive value-added services, and the ability to use any of their global locations.

​Co-working 101 

But in order to keep up with China's mass entrepreneurship drive that encourages creativity and innovation to promote self-sufficiency and economic growth, co-working operators in China are competing in a highly competitive environment, growing as fast as they can, at all costs. In other words, they are following a very familiar mantra in China: go big, go fast, and worry about the details later.

Until now, this has been fine for the target customer whose expectations on office space are low. Young entrepreneurs looking to be the next Jack Ma are often living what amounts to the extension of a college lifestyle – cold pizza and all. The target customer doesn't travel often and tends to stay in one location. Also, in cities where large homes are a rarity, co-working spaces offer a welcome relief from cramped homes where a home office is impractical. For now, this makes sense. These are early-stage companies with individuals who are personally invested in seeing their businesses succeed.

A no-frills offering in China

In feeding this demand, the popularity of cost-effective office space has soared, as small companies prioritise price above all else. Services and equipment are no-frills and interiors are designed to be practical. The emphasis is on getting a functional workspace with shared services and Internet connectivity that meets business registration requirements. These locations allow plug-and-play setups at minimal cost. Fixed desks are rented out on a monthly basis and do not have free seating seen with the international operators. This makes the business model a variant of "sub-landlording" commonly seen in China where a large space is simply subdivided and rented on short leases, and is also like the no-frills cousin of a traditional serviced office.

Tenants of tomorrow 

In this environment, the future consolidation of co-working operators in the market is inevitable. The real survivors of mass entrepreneurship in China will be able to care about the frills – and this will lead to more co-working formats that increasingly resemble that of the global operators.

With co-working operators commanding only a few percent of office space in Beijing according to our own analysis, the leasing activity of the operators themselves is not a major market mover. It's still the large tenants that move the market. The opportunity is in nurturing small tenants to become large-scale occupiers as they grow and this is the chance for landlords to reel them in from the start. Setting up a permanent office starts to make financial sense as a company grows into dozens of employees.

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Contrary to expectations, Zhongguancun – or China's Silicon Valley – does not hold the highest concentration of co-working space in Beijing, because Zhongguancun is more about incubators, who take a financial stake in new companies. Rather, co-working space is spread out in pockets throughout the city.

The fast growth of co-working in China is leading more landlords to evaluate the benefits that co-working can bring to their properties to keep occupancy levels up. As more start-ups reach success, the benefits of having a co-working operator within an office building will continue to rise.​

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About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, www.jll.com

JLL has over 50 years of experience in Asia Pacific, with 36,000 employees operating in 94 offices in 16 countries across the region. The firm won the ‘World’s Best’ and ‘Best in Asia Pacific’ International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the fifth consecutive year by Real Capital Analytics.​ www.jll.com/asiapacific  

In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2016, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country​.  www.joneslanglasalle.com.cn​​​​​​​​​​​​​​​​