China state-owned Gemdale Properties and Investment has handed over one of its own co-working facilities to WeWork for conversion into a new centre for the co-working giant, as the two companies enter a revenue sharing agreement, according to a statement from Gemdale.
A 3,300 square meter space, previously housing a location of Gemdale’s own office sharing brand, iBase, in Vision Shenzhen Business Park, has been selected for conversion into a WeWork centre in the pilot project for the new partnership. The new WeWork facility is slated to open during the second half of this year.
The tie-up with Gemdale, which had contracted sales of RMB 162.3 billion in 2018, adds the state-run developer to a growing group of mainland developers teaming up with WeWork, with Beijing-based Sino-Ocean having already entered into a partnership with the New York-based firm.
Gemdale Shuts Down Shenzhen Location
“We have fully realized the importance of space, service, platform as the three essential elements for the creation of a vibrant innovative community,” Gemdale said in the statement. The Shenzhen-based developer ventured into the co-working office sector in 2016 with the launch of its first iBase location inside Building No 7 of the 600,000 square meter Vision Shenzhen Business Park in its hometown. On January 15th, Vision iBase announced that it was ceasing operation.
Gemdale explained in the statement that it selected WeWork as a partner to relaunch the co-working space due to the US firm’s rich experience in community operations and the power of its global membership network.
WeWork said that by adding the Vision Shenzhen Business Park location to its two existing WeWork locations in the city, it will further dig into the Shenzhen market in 2019, allowing it to expand its services to the city’s innovation and start-up ecosystem and capture the opportunities presented by the development of the Greater Bay Area. According to WeWork’s website, the company has another two facilities due to open in the city soon.
Leveraging a “Participating Lease”
The New York-based shared office giant recently said that it is now looking to partner with landlords or developers at a “portfolio level”— working across multiple projects or buildings – and co-operating with building owners to open and manage office facilities, rather than renting sets of floors, which it then would sublease to end-users.
The partnership with Gemdale is based on what WeWork has termed a “participating lease” – a revenue sharing scheme with the landlord. Although WeWork declined Mingtiandi’s request to elaborate on the specific terms of the Gemdale partnership, a “participating lease” generally includes having the building owner inject capital for creation of a facility to be operated by a joint venture, or lowering upfront payments to be paid by WeWork, in return for receiving a share of the income that the shared space operator derives from the new location.
Gemdale Finds Co-Working Takes More Than Sofas
Gemdale launched its iBase shared office brand in 2016, using its Spark Epoch unit, which also oversees its rental housing business, to manage the new venture.
According to its website, iBase currently has a total of five locations, with one in Beijing, three in Shenzhen and one in Irvine, California. The Vision Shenzhen iBase, however, officially ceased operation on January 15, just after the announcement of the WeWork partnership.
In a notice to its tenants, the management of Vision iBase cited a downward economic trend, management challenges, rising vacancy and financial losses as contributing to its decision to close the three-year-old co-working space. Surprised tenants at Vision iBase are said to have been presented with a choice of two temporary solutions while the centre is renovated — either relocate to another WeWork space outside of Vision Shenzhen and sign a separate rental agreement with WeWork, or move to a currently unused space in the No. 8 building until August 2019.
Getting More Cash From the Same Space
Local media reports indicated that the WeWork partnership offered Gemdale the opportunity to immediate increase its revenue from the shared office facility. The developer had previously been renting the 3,300 square metre space to its iBase unit for RMB 72 per square metre per month, according to the media accounts, while the market price for leasing the same property stood at RMB 180 to 200 square meter.
Shanghai-listed Gemdale is now said to be leasing the space to WeWork at RMB 160 per square meter, with WeWork sharing the revenue from its operation in the facility with Gemdale.
Gemdale’s core business includes residential real estate, commercial real estate, industry parks, hotels and rental housing. In Gemdale’s 2018 interim report, the company said without mentioning its co-working endeavour, that benefiting from an increase in the number of the commercial property and rental housing projects commencing operation, the group grew its revenue from rental and management fees by more than 22 percent in the first six months of 2018, compared to the same period the previous year, reaching RMB 218.3 million for the first half of last year.
Earlier this month, WeWork revealed that Japan’s Softbank has agreed to invest another $2 billion in the company as the co-working space provider announced that it was rebranding as The We Company, which promotes WeWork’s office space division alongside its WeLive co-living venture and its WeGrow educational division.