Editor’s note: This was produced in partnership with Start Alliance, a business network between the most vibrant startup hubs around the globe. Start Alliance supports startups to adapt business models to international requirements and accelerates corporate innovations. Partner cities are Berlin, New York, Paris, Tel Aviv, and Shanghai.

Rock music has appealed to young listeners for decades with the celebration of freedom, rebellion, exuberance and the spirit of living in the present. For China’s young generation, entrepreneurship is the new “rock n roll” with the same theme in challenging the norms and seeking the unknown. If you want to look into Shanghai’s entrepreneurial spirits, co-working spaces are the right place to go.

Yanping Attic, a factory-turned shared space that sits at Yanping Road in downtown Shanghai, is one of the regular co-working spaces in the metropolitan city. It has all the trimmings of a typical shared space, rows of tables, meeting rooms and lounge-style common areas. Although the loft space is just enough to hold a few companies, it’s a place worth visiting. As the second location of Shanghai’s first co-working space, People Squared, this is pretty much where everything about Shanghai’s co-working bonanza started.

Yanping Attic, the second location of People Squared (Image credit: Dianping)

My first visit to Yanping Attic dates back to 2013 when co-working hadn’t become a thing yet in China. I was there for a lean startup event. As someone who just transitioned from a finical agency that featured an austere working environment, the space intrigued me with its flexibility, emphasis on building a community and facilitation for communication. But what struck me the most was the people I met there: passionate and self-driven visionaries who see their work as meaningful and truly believe their work is going to achieve something big in the future.

My love for co-working spaces increased gradually over the years following that first visit. As a tech reporter, I’m in constant need of a place to keep me productive. Of course, our company has an office, but the hassle of traveling across the whole city doesn’t always make sense. Working at a Starbucks is another popular choice for people like me, but they only offer a place to sit, mediocre coffee, and overpriced food. At a co-working space, I get more than just a desk; I also get a community to keep track of the trends and mingle with the inspiring brains from various industries.

I believe many have shared my experiences and feelings when they first encounter shared working space. To be fair, the boom of co-working in Shanghai, as well as the whole country, clicks with our feelings.

The huge co-working space market

Co-working originated at the beginning of this century, but it didn’t find its way to China until recently. Although the boom came a bit late, it is taking over the Middle Kingdom in a big way.

There are around 300 co-working spaces and innovation centers in Shanghai with occupancy rates at around 70%, according to report released by local authorities in September 2016. China’s co-working space operators exceeded 3,500 by the end of 2016, offering over 100k desks around the country, research institute CRIC pointed out.

Real estate developers, hospitality operators, financial investors, and media groups are capitalizing on fast-rising demand for the leasing of shared office spaces in China.

In Shanghai alone, we can name a number of big names in the arena from URWork, naked Hub, People Squared, Sandbox and more. Aside from domestic players, foreign counterparts are also eyeing the market. WeWork, the US co-working unicorn valued at around $18 billion, has turned its attention to China with first locations in top-tier cities of Shanghai and Beijing.

The reasons behind the boom

Multiple forces have contributed to this change. The spread of the sharing economy mentality in China helps Chinese customers to shift to a more collaborative consumption lifestyle, which in turn has facilitated the quick adoption of shared office spaces.

In addition to sharing cars and homes, which you can find their counterparts in the western world, China is pushing the boundaries of what we can share and constantly integrating new areas. In the country, you can rent pretty much everything from power banks, umbrellas to basketballs.

The rise of China’s millennial workforce is another propeller of the co-working boom. The new kind of space experience caters for the need of this rising group, which seeks for more flexibility and mobility in their workplace.

“The generational difference makes people work differently so they prioritize different things at work,” pointed out Claire Stephens, Head of Workplace Strategy at global real estate services firm JLL.

“Millennials tend to be more community oriented, particularly with an online community, they are quite tribal as opposed to being identified with a particular company. They could be very loyal if they view that company as being one part of their tribe. So, making them identify with the space is very important.”

Part of the growth of co-working spaces is government-directed, too. In a bid to offset slowing growth in traditional industries, Beijing has called for mass entrepreneurship and innovation. The preferential policies from the government not only help to foster startups, but also the co-working spaces, which provide accommodation and support services.

What’s more, co-working is a possible solution for reinvigorating China’s overstocked real estate industry, which has undergone overproduction problem in the past few years as a pillar of China’s GDP.  China’s research team ANZ estimated last year that it will take about four years for developers to sell their existing stocks.

Consolidation begins in the emerging market

The buzzes surround co-working industry, booming market and huge investments has lead to the excessive fast development of the sector. In a few years, China’s emerging co-working world is heading for a major transformation now.

In a crowded vertical, a few leaders are taking the dominant share of the market. While all the funding and attention is concentrated on a few top players like URWork and WeWork. The other smaller competitors are sinking into oblivion. At this time merging with another rival is a good option to stay in the market; that principle applies to everyone even if you are a unicorn in the sector. URWork, which was raised to unicorn status after receiving a $58 million Series B at a valuation of $1.02 billion in January this year, inked an agreement with another rival, New Space, for a strategic merger earlier this year. New Space itself merged with AA Accelerator back in 2015, while Shanghai-based We+ just merged with CoWork.

Segmentation is expected to differentiate different players

With so many competitors moving in, the question for managers and operators of shared spaces has become “How to remain unique?” The solution is something obvious—differentiation. With shared spaces coming from different backgrounds and DNAs in their companies, this seems an easy solution.

Shanghai-originated People Squared is moving towards vertical segmentation for creative persons in music, content, and food. “As we created space for entrepreneurs, startups, we started to see a lot of talent. Co-working and music have a good harmony together, so we thought, why don’t we provide a dedicated co-working space for them?” said the founder of People Squared, Bob Zheng.

As the emerging working model becomes mainstream, more large and medium-sized companies are jumping onto the bandwagon to benefit from the new style of office management. naked Hub, the Shanghai-based network co-working space affiliated to hospitality group naked Group, is going for the higher-tier market for those large and medium-sized corporates who want to try out the new means of working.

With the founding team coming from a tech background, MyDreamPlus is looking to develop the most techie space where users can control everything from unlocking the doors, printing to booking the conference rooms on your mobile phone.

Another co-working operator Sandbox is trying to develop a platform, where users can search and book desks and meeting rooms at spaces nearby.

Despite the hype surrounding the whole co-working industry, it is still taking a very small market share in the whole office market.

“The space operated by all co-working operators combined is around hundreds of thousands of square meters for now. But if you look at the office industry, that accounts for perhaps less than one percent of the whole traditional office space market.” according to Bill Li, co-founder of MyDreamPlus.

Emma Lee is Shanghai-based tech writer, covering startups and tech happenings in China and Asia in general. We are looking for stories related to tech and China. Reach her at lixin@technode.com.

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