US co-working unicorn WeWork still has its foot on the gas in Hong Kong with local news sources saying the flexible space startup has just taken on six new floors in Wharf’s Harbour City complex near the Star Ferry terminal in Tsim Sha Tsui.
The new 150,000 square foot (13,935 square metre) lease comes despite the shared office giant revealing last week that it had lost $2 billion dollars in 2018, and media accounts just days later indicating that some lenders were thinking twice about issuing loans backed by buildings where WeWork is the major tenant.
In response to inquiries from Mingtiandi regarding the reported Kowloon lease, a WeWork representative replied that the company does not comment on media reports citing market or industry sources.
TST Location to Add to HK Co-Working Footprint
WeWork’s soon to be newest location in Kowloon is a ten-minute ferry ride across Victoria harbour from the Central pier, in tower six of the Gateway Tower complex, a set of office blocks that rise above Tsim Sha Tsui’s luxury shopping streets.
Best known for its role as a luxury retail hub, grade A office vacancy in Tsim Sha Tsui stood at 2.3 percent at the end of February, according to data obtained from JLL.
In Gateway Tower 6, which leases for an average of HK$60 ($7.64) per square foot per month, WeWork will be rubbing up against Goldman Sachs-backed co-working operator Atlas, which last year opened a 50,000 square foot centre in the same building.
In comments to Mingtiandi, Jonathan Wright, director of flexible workspace services for Asia at Colliers International said that, while the Tsim Sha Tsui area benefits from its proximity to Hong Kong’s high speed rail terminus, it remains to be seen if flexible office centres will catch on in the area, which remains the most expensive Kowloon location for office space.
Growing in a Cautious Hong Kong Market
WeWork’s reported TST foothold would be in addition to the eight locations it has opened since beginning operations in the city in 2017, as well as three upcoming projects that have been officially announced.
The expansion drive is in contrast to operators that appear to be backing away from the breakneck expansion of Hong Kong’s shared space market.
Most operators are a little more conservative (in 2019) than in recent years and are approaching deals with more caution,” Colliers’ Wright said, adding that “WeWork, and other operators, are seeking deeper partnerships with landlords, though in the Hong Kong market this is challenging due to market dynamics.”
Confirmed for this year’s pipeline at WeWork are a pair of company branded co-working spaces in Causeway Bay (one at Hysan Place and the other at Lee Garden One), as well as two of its customised “Powered by We” projects built for corporate occupiers or building owners.
The first of these WeWork designed and managed facilities, which WeWork says is being brought online for a global financial institution will be in Sun Hung Kai’s International Commerce Centre in Kowloon West, and the second will be rolled out via a partnership in Nan Fung and Link REIT’s The Quayside joint venture in Kwun Tong.
Last December saw the co-working company launch offices at the LKF Tower, just up the hill from the Center on Queen’s Road, which is now home to tech firms such as global SaaS provider Merrill Corporation, New York-listed cloud platform Workiva, and China influencer marketing agency PARKLU.
2018 also saw the launch of WeWork Taikoo in Quarry Bay and WeWork Two Harbor Square in Kwun Tong.
Hong Kong Expansion Comes Amid Global Doubts
Speaking of the outlook for shared office space this year, Colliers’ Wright pointed out that, “Operators will need to do more than just take up space and deliver flexible workspace to get landlords to the table for partnership deals — they will need to bring a greater offering, particularly in respect of hospitality and amenities to genuinely deliver value to get these types of deals.”
This more challenging environment was underlined by WeWork’s financial report last week and reinforced by the news of Dutch bank ING backing out of a deal to finance a London office building to be 100 percent tenanted by WeWork.
According to CEO Adam Neumann, WeWork’s finances were stretched by its rapid rate of opening new centres, as declines in occupancy rate in lower-cost markets from 84 to 80 percent in the fourth quarter of last year, which also caused its revenue per member to drop to $6,360 — down 13.5 percent from early 2016.
Having predicted years ago that the company would be profitable by now, WeWork began 2019 with expansion to its 100th city, and now has 425 locations in 100 cities across 27 countries, serving more than 400,000 members. In China, 2019 has already seen WeWork enter Wuhan and Guangzhou, and it now has 74 operating locations in Greater China in eight cities, serving a total of 85,000 members.