China’s booming co-working industry is maturing as major operators press forward with mergers and partnerships. A few months after the strategic merger between China’s co-working unicorn URWork and its rival New Space in April, Shanghai-based naked Hub announced a merger with Singaporean JustCo yesterday at naked Hub’s first Hong Kong location that opened on the same day.
According to spokespersons from both parties, the merger will form the largest co-working space in Asia in terms of the number of locations and gross floor area (GFA) under management, making it the biggest competitor for WeWork, a US-based co-working unicorn, in Asia. They also said that the operational details of the merger are still being finalized.
Co-working is flourishing worldwide. In 2010, only 600 co-working spaces existed worldwide; that number has grown to 11,300 by 2016, according to Statista.
China’s co-working market began to grow rapidly in the last two years. URWork, founded by a former executive of Chinese real estate giant Vanke, has raised six rounds of funding totaling RMB 1.2 billion ($175 million) since launching in April 2015. WeWork officially entered China in 2016 and sealed a $43 million pay packet to fuel its expansion in the region. As part of the national plan to boost entrepreneurship and innovation, local governments are also subsidizing rental for startups across China.
“We put an emphasis on localization,” says Deborah Negrash, General Manager of naked Hub Hong Kong, when asked how the space distinguishes itself from WeWork.
naked Hub’s first space in Hong Kong, located in the heart of Sheung Wan, is a slender “pencil building” characteristic of the metropolis’ urban density, spanning 16 floors that can hold over 800 desks. Aside from the staple open offices and hot desks, the Sheung Wan hub also includes private offices, a Hong Kong tea house-like meeting point, double layered glass windows and neon lights to meet local demands and aesthetics. “We are bringing the Sheung Wan neon back to Sheung Wan,” says Grant Horsfield, founder of naked Group, the lifestyle and hospitality company that operates naked Hub.
Unlike most Chinese co-working spaces who focus on serving early-stage startups, which are often cash-strapped, naked Hub aims to convert traditional businesses, namely, small and medium enterprises (SMEs) and multinational corporations (MNCs), into tenants. The average rent per person in its “premium flexible workspace” can be as high as over RMB 3,000 per month. Its first Hong Kong location is currently at over 90% occupancy rate, says the company.
naked Hub is riding a cultural shift where traditional businesses are moving into flexible working environments. Last year, HSBC signed up for more than 300 hot desks at WeWork in Hong Kong. “We help traditional companies cut costs and keep their employees happy,” says Negrash, referring to the value-added services like beer, gyms and yoga rooms that a premium co-working space offers. An 8-people team can save up to 33% by relocating to naked Hub from a traditional office, says the company. Among its notable SME tenants in China is Douban, a social network company with over 100 million monthly unique users (in Chinese) and GoPro.
Founded in 2015, naked Hub currently operates 21 hubs in Shanghai, Beijing, Hong Kong and Vietnam. Adding JustCo’s locations in Singapore, Bangkok, Kuala Lumpur and Jakarta, the new naked Hub network will claim a combined footprint of 140,000 sqm GFA in six countries across 41 locations, and is expected to grow close to 200 hubs in Asia by 2020. In 2016, naked Hub closed a $33 million series B round funding led by Hong Kong’s Gaw Capital and is expecting to raise a $200 million series C round as soon as August 2017.