WeWork has secured another $500 million in funding for its China expansion as the global co-working giant and its partners Hony Capital and Softbank prepare to battle for domination of the mainland shared office market.
“This investment will help WeWork fuel our mission to support creators, small businesses and large companies across China,” WeWork co-founder and CEO Adam Neumann said in a statement.
The $20 billion shared office firm made the announcement on Thursday, saying the Series B investment was contributed by a group of Asian companies, including Hong Kong and Shanghai-based private equity firm Trustbridge Partners and Singapore’s Temasek Holdings, in addition to returning investors Hony Capital and SoftBank Group, which is investing together with its nearly $100 billion Vision Fund.
The new investment values the mainland unit of WeWork at $5 billion — a five-fold jump in value which the firm may need as it fights for market share in a region where competing operators are opening new co-working centres faster than anywhere else in the world.
WeWork China Raising $500M Per Year
The series B funding announcement came exactly one year after Neumann and company announced the formation of WeWork China with $500 million in funding from a series A group of investors including Hony and Softbank.
The new cash should be useful to WeWork China chief Christian Lee as his team strives to keep up a pace that has seen it establish 40 greater China locations in two years. The expansion may be as much out of necessity as choice with Conrad Tsang, founder and chairman of Hong Kong-based investment company Strategic Year Holdings Limited, saying of the mainland shared office market that, “there’s no choice but building scale.”
“WeWork has reached a level it can only keep building up its scale until it eventually profits,” Tsang noted, “with all the long-term lease deals it has penned, the commitment is too big to stop,” he added. Globally the office provider reported a net loss of $933 million in 2017.
Since the launch of its first location in China in 2016, the office-sharing firm has expanded to 40 locations across Beijing, Shanghai, Hong Kong and other Chinese cities. In early February, the company announced a plan to expand its co-working business into eight second-tier cities including Shenzhen, Suzhou, Hangzhou, Xiamen, Chengdu, Nanjing, Xi’an and Wuhan within the year.
Neumann’s new partners hailed WeWork’s progress in the region with Trustbridge managing partner Feng Ge commenting in statement, “WeWork is paving the way for a new future of work in China and supporting the transformation from ‘Made in China’ to ‘Created in China’.”
The company aims to double the number of its current 20,000 members in China by the end of 2018. In April the New York-based firm, WeWork acquired supercharged its mainland expansion by acquiring Shanghai-based competitor naked Hub, for $400 million.
WeWork Adds Third HK Location This Week
Hong Kong will welcome its third WeWork location on August 3rd, when the company is set to open a four-storey, 54,000 square foot (5,016.8 square metres) in Swire Properties’ Cityplaza Three.
The Cityplaza office marks the third Hong Kong location of the company, after a 90,000-square-foot floor in Phoenix Properties’ Tower 353 in Causeway Bay, and an office floor with the area of 60,000 square feet in Mass Mutual Tower in Wan Chai.
WeWork also has announced the impending opening of a 14-storey centre in Central’s LKF Tower at the busy Central district and the company has also leased a 36,000 square-foot floor in Mapletree Bay Point in Kowloon East.
Mainland Co-Working Challenge
Meanwhile, Tsang warned that the US company could face obstacles as it was working its way in China, where he said, the business culture could be very different. “In face of competitors including small, big, local and international operators, China is a brutally competitive market. Some companies are even willing to sacrifice their profit margins to let prices go extremely low just to win this,” he said.
According to a JLL report released on July 3rd, Asia Pacific’s pace of rolling out new shared office facilities is the fastest in the world, with the region’s supply of co-working and serviced office having grown at an average annual rate of more than 35 percent from 2014 through 2017.
Mainland Players Begin Consolidating
This pace of expansion is separating China’s better funded players from weaker co-working rivals.
Mainland China’s biggest homegrown co-working provider, Ucommune, which is backed by VC heavyweight Sequoia Capital, has acquired a series of smaller competitors in the past year, including WeDo, New Space, Woo Space and less than three months ago added more than 20 additional co-working centres to its portfolio by acquiring Shanghai-based Workingdom.
Despite these acquisitions, Jonathan Wright, APAC head of flexible workspace services at Colliers International explained to Mingtiandi that finding new locations may also be a major challenge noting that, “overall growth rates in some markets may slow, but due to unavailability of space rather than lack of demand. The sector is in a healthy place, but it does need to continue to evolve and delivering a product that accommodates MNCs is the key to sustained growth”.
To meet these changing requirements, Kr Space, a spin-off of Alibaba-backed tech platform 36Kr.com has also been striving for scale, securing its first Hong Kong foothold in May before reports surfaced in June that the company is seeking to raise another $200 million to build out its platform in the region.