Soho 3Q, the loss-making flexible office unit of developer Soho China, is reported to have sold a portfolio of 11 co-working centres in Beijing and Shanghai for an undisclosed amount, according to a local media account.
Representatives of the buyer, Shenzhen-based shared workspace provider Dream Star, are said to have confirmed the sale.
The decision to sell the portfolio comes six months after Soho chairman and co-founder Pan Shiyi told shareholders that steps would be taken to ensure 3Q’s profitability after concerns were raised that the flexible office unit was burning cash.
The reported disposal makes it appear that Soho has sold off its co-working assets in Beijing and Shanghai just a few weeks after the collapse of WeWork’s IPO in the US, and over a year and a half after Pan had announced plans to to spin off Soho’s shared office business in preparation for its own public offering.
Soho China had not responded to Mingtiandi’s enquiries regarding the reported deal at the time of publication.
Building Up a Dream Star Portfolio
The reported acquisition by Dream Star does not include details regarding the locations of the assets, however, Soho 3Q operates seven centres in Shanghai and another four centres in Beijing, as well as one in Hangzhou, within properties owned by the developer. The company’s other 18 locations are located within properties owned by third-party developers.
Dream Star’s reported acquisition of the set of shared office assets follows a reported agreement by the Shenzhen firm four months ago to lease the 3Q centre at Bund Soho in Shanghai for 15 years.
The 8,500 square metre space on Zhongshan Dong Yilu, which is spread across four floors of the 72,826 square metre tower G of the Soho project near the south end of the Bund, has since been rebranded by the new owners under the Dream Star name.
The Shenzhen-based startup combines shared offices with incubators and accelerators and pulls its tech-focused tenants from life sciences, health care, smart manufacturing, and new retail.
The addition of the Soho 3Q locations will boost Dream Star’s offering, which already covers more than 300,000 square metres across 20 Chinese cities including Shenzhen, Beijing, Shanghai, Tianjin, Chengdu, Chongqing, and Wuhan.
Soho Slims Down
After ramping up its co-working portfolio to 30,000 desks across mainland China in the four years since launching Soho 3Q, the Beijing developer powered by Pan together with his CEO wife Zhang Xin is offloading all except one of the centres it operates within its own properties through a sale that will see its presence slimmed down from 30 locations to 19.
In August 2017, Pan had pledged to make Soho 3Q the largest co-working provider in China with 500,000 desks.
Setting up co-working spaces in its existing commercial properties or in converted B-grade buildings owned by other developers, Hong Kong-listed Soho has focused its 3Q initiative on Beijing and Shanghai, but also opened locations in Hangzhou, Shenzhen and Nanjing.
The streamlining of its co-working portfolio comes amid reports of ultra-low occupancy across the mainland China shared offices of rival WeWork.
According to an account published in the Financial Times last week, 36 percent of the Softbank-backed company’s 43,600 desks in Shanghai were empty, while 65 percent of its 8,000 desks in Shenzhen were vacant.
Co-Working Comes Back to Earth
Increased competition, as well as the evaporation of an earlier flood of funding for the sector, has seen the co-working landscape change in China.
Last year, forty co-working operators crashed out of the country’s shared office sector between January to October, according to a study by the China Real Estate Chamber of Commerce.
The prospects for Soho 3Q and other shared office providers may be dimming in part due to a growing glut of office space in mainland China.
Office vacancy in Shanghai’s core submarkets averaged 12.0 percent at the end of the third quarter, according to the most recent report from Cushman & Wakefield, up from 9.1 percent at the same point last year.
The agency noted that, “New Grade A office supply located in suburban areas with convenient transportation connections, amenities and most of all, cheaper rentals, are placing continuous pressure on core market office rentals and this trend will continue for the short term future.”