Kr Space has surrendered its lease in Hong Kong’s Times Square, bringing to a close the mainland co-working startup’s ill-fated venture into the Asian financial hub, according to industry sources who spoke with Mingtiandi.
The Beijing-based operator, which completed a RMB 1 billion ($145 million) round of funding in May, is closing down its 34,000 square foot (3,159 square metre) centre in the Causeway Bay landmark just nine months after opening in the complex.
Kr Space’s sole location in Hong Kong has been put on the market by Times Square’s owner, Wharf Holdings, just seven months after Hong Kong-listed developer Chinachem filed a lawsuit against Kr Space for breaking a five-year agreement to lease 83,000 square feet in its One Hennessy office building in Wanchai.
Wharf Holdings declined to comment when approached by Mingtiandi, while Kr Space had not replied to enquiries at the time of publication.
Wharf has put Kr Space’s erstwhile Hong Kong home on the market at an asking rent of HK$60 ($7.66) per square foot, according to an account in ET Net.com, just 16 months after the spinoff of Alibaba-backed technology platform 36Kr had announced that it would open a 50,000 square foot, three-storey space the building in cooperation with the Hong Kong-listed developer.
The location in Causeway Bay was announced in August 2018, after Kr Space in May that year had marked its intention to enter the Hong Kong market with a preliminary agreement with Chinachem to enter One Hennessey. At that time, Liu Chengcheng, Kr Space’s founder, had pledged to add 10,000 desks per month to its portfolio in an effort to outpace WeWork’s expansion in China.
After running short of cash early this year, Kr Space ended up occupying only two floors in Times Square – the thirty-fourth and thirty-fifth levels. Adding to the startup’s challenges, the company’s 552 desks across the pair of floors were originally expected to lease for HK$10,000 to HK$12,000 per month each, but the latest listed prices are roughly half of that, with hot desks priced at HK$5,500 per month and fixed desks fetching HK$6,500.
With around 300,000 square metres of space across Greater China, the company’s expansion plans have been squeezed between a drought in venture financing and the challenges of subleasing offices in the world’s priciest commercial real estate market that forced the firm to cut 12 percent of its staff earlier this year as part of a broader move to reduce operating expenses.
Cutting Back in Hong Kong and Shanghai
One month after Kr Space bailed out of its One Hennessey deal, the co-working startup abandoned a planned centre in New World Development’s K11 Atelier on Tsim Sha Tsui, with Jakarta-based co-working provider CEO Suite taking over the 27,000 square foot office location.
In addition to its Hong Kong trouble, Kr Space was reported in February to be closing down six “money losing” mainland locations spanning 30,000 square metres as it underwent a “business adjustment”.
Spaces, the co-working arm of European flexible office giant IWG, took over a 54,000 square foot office space in Shanghai’s Infinitus Tower in May after Kr Space had defaulted on its lease of the space in the freshly-opened office project.
Empty Desks Stack Up
Despite early investor appetite for flexible office space fuelling growth and providing funding opportunities for startups, pricing competition and a slowdown in venture capital financing has caused collateral damage in the sector.
Forty companies in China’s shared-office sector crashed out of the industry between January to October last year, according to a study by the China Real Estate Chamber of Commerce.
That same report indicated that about 40 percent of co-working projects were more than half empty at the time it was published in February of this year.