China Sets “Main Stage” For Global Coworking Evolution

• A China Money Network recently published its “Coworking in China: Disrupting the Workplace” report
• According to it, China is transforming itself from “the world’s factory” into a global innovation centre
• By 2020 the number of coworking spaces in China is expected to reach 5,000

“Coworking space will be the future of work, and China will be the main stage where this evolution takes place”

That’s the powerful conclusion from a special report by China Money Network, a data and intelligence platform, which is tracking the Chinese coworking market’s phenomenal transition from startup boom to consolidation and rapid growth.

According to the report ‘Coworking in China: Disrupting the Workplace’, China is in the midst of transforming itself from “the world’s factory” into a global innovation centre, and coworking is becoming an important vehicle to enable and support that evolution.

China’s Coworking Factory Line

While the nation is keen to shed its image of a manufacturing powerhouse, it seems no-one told the coworking industry. The pace at which new coworking spaces are mushrooming across China’s key cities is astounding:

• 2015 was the year that coworking blossomed in China with a total of 2,530 spaces, up from 1,600 the year before (VC Saas).
• The number of coworking spaces nearly doubled between 2014 – 2016.
• The huge growth of the sector was supported by venture capital firms putting money into new spaces. The number of venture capital investments in the coworking sector rose dramatically from just 3 in 2014 to 28 in 2016.
• By 2020 the number of spaces is expected to reach almost 5,000.

Most of China’s largest and best-known coworking brands, including naked Hub, Ucommune, Mydream+, Weplus, Fountown and Woo Space were all founded in 2015. Of course, several of those spaces merged with other brands just a couple of years later — most notably Ucommune acquired Woo Space (among others) and WeWork acquired naked Hub.

Startup Boom

What’s driving the surge in coworking spaces?

Part of it is a huge national push for innovation and “mass entrepreneurship”, which formed part of government policy in 2015 and led to a surge in startup businesses.

Over six million startup businesses were registered in China in 2017 and the nation is now home to “the greatest concentration and highest total valuation” of startups globally. According to the report, more venture capital is being invested in Chinese businesses on a monthly basis in 2018 than the U.S. — and flexible workspace is fueling the fire.

In addition to supporting the nation’s startup community, coworking itself received a significant boost when government officials visited numerous coworking spaces during publicity campaigns, and effectively helped to put coworking on the map.

This of course significantly raised the profile of flexible workspace and, in addition to attracting members, also served to highlight the potential of coworking as an investment opportunity.

Big Three Dominate Chinese Coworking Market

The report claims that consolidation “is far from over” and names the Chinese coworking leaders as WeWork and naked Hub, Ucommune, and Kr Space, which are currently the best-funded, highest-valued and largest players.

“More deals are likely through next year to make the strong even stronger.”

The report explains the drivers behind China’s relentless coworking growth and consolidation — namely, scale and synergy. While rental income is finite due to space limitations, non-rental income is the big winner.

Kr Space, which is part of the much larger business organisation 36 Kr, was able to make 20% of its revenue through non-rental income by providing services such as incubation, startup support and advertising, through the group’s other units.

“This is an example of synergy, where larger scale is critical in increasing this non-rental income ratio. Therefore, a wave of mergers and acquisitions has taken place since the second half of 2017 in the Chinese coworking space.”

And as competition intensifies it seems that growth in China will continue at pace.

The report concludes:

“Coworking space will be the future of work, and China will be the main stage where this evolution takes place. The industry is likely to enter a phase of consolidation and operational value-add. Those who win the race toward scale and true value-add will become the defining force of the workplace of tomorrow.”