Coworking space operators are being affected by a lack of funding from venture capitalists.
The China Real Estate Chamber of Commerce (CRECC) found that 40 companies disappeared from January to October 2018 and 40% of coworking spaces are currently half empty.
These startups heavily rely on fresh financing, so analysts believe that smaller firms won’t be able to compete with major operators, such as WeWork, and will either close down or be acquired.
Kr Space, one of China’s largest coworking firms, says it is being more particular in expanding and cutting overlapping business positions to reduce operating expenses. An anonymous executive for the company also revealed that the operator recently cut 12% of its staff.
“The reason coworking operators are in the doldrums is quite simple: they are leasing desks quite cheaply while their office acquisition and operating costs are high,” said Gary Wen, head of the commercial department at Savills North China. “They have been telling investors that they can rent out a desk at 4,000 yuan a month but they haven’t been able.”
Beijing coworking spaces in secondary areas range anywhere between 1,000 and 2,000 yuan per desk per month.
Sean Wang, vice president of Cushman & Wakefield Greater China, said that coworking operators losing rent revenue is damaging, but firms that haven’t recklessly expanded will survive.
On the other hand, Wen believes major industry consolidation is on the horizon.