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Jeremy Fennema – Tech Innovation Alchemist
WeWork Asia has plans to continue its massive expansion, while cutting its rent costs, by entering into revenue-sharing agreements with landlords.
Christian Lee, vice-chairman of WeWork Asia, says that if the company is able to convince landlords to move away from traditional fixed-rent, it will benefit all parties.
“We’ve adopted this scheme in other parts of the region,” said Lee. “Landlords maintain their control over the assets but bring in WeWork to run the building with them. When we talk to the landlords, we let them know that through [this type of] lease, we make more and they make more.”
WeWork calls this a “participation lease” where landlords can partner with WeWork by injecting capital or lowering their tenant’s upfront payment, then take a share of the company’s income. WeWork would also help with building management.
Some analysts think persuading landlords to switch over to this model will be easier said than done.
“Landlords in Hong Kong are quite traditional so why would they put themselves in such a difficult position and share the risks with co-working operators?” said David Ji, head of research and consultancy at Knight Frank.
2018 saw rent in Hong Kong’s Central district soaring 7.5%, which has made many law firms and finance companies to relocate to cheaper areas of the city.
WeWork has already locked in a participation lease with Daman Land in Malaysia and global supply chain manager Fung Group. Belinda Fung, chairman of Fung Properties China, said that this agreement will help the company maximize building space.
On Tuesday, WeWork launched its eighth Hong Kong location with 1,000 desks over 17 floors in LKF Tower in the Central district. Next year, they plan on opening four more locations in the city.
Market experts believe the revenue-sharing scheme could provide a buffer in case the market downturns.
Coworking operators have taken up over 1.8 million square feet of space in Hong Kong, but demand for office space in the next year is expected to slow down amid uncertain economic outlook.
