Competition is intensifying in the booming cross-border coworking market. The global leader in the coworking space, WeWork, has been expanding fast in China. WeWork has recently acquired 3-year-old Shanghai-based rival Naked Hub and its 30 locations, mostly in Shanghai and Beijing, for $400 million.
Meanwhile, WeWork’s lead China rival, UCommune, launched in downtown Manhattan this spring and plans to open in Los Angeles, says Mao Daqing, founder and chairman of UCommune. The startup has partnered with Serendipity Labs Coworking in the U.S. to launch in New York City’s financial district, in a building owned by Chinese conglomerate Fosun Group. “Today’s workforce is mobile, and they demand professional office space, with world-class offices and amenities,” said real estate veteran Mao, at an opening celebration of the new Manhattan space that augments UCommune’s already large footprint in China.
Mao said he expects consolidation in the market to escalate as the biggest companies survive, including, of course, his own. UCommune operates 120 locations in China and claims to be the nation’s largest office-sharing provider. Bulking up, UCommune has been behind the mergers-and-acquisitions drive in China’s coworking space. Over the past year, UCommune has initiated a series of mergers with local Chinese rivals, including Wedo, Coworking, New Space, and Woo Space. Another major contender in China’s increasingly crowded coworking space is KR Space in Beijing, started by Chinese media and entertainment company 36Kr.
UCommune is the same company that ran into trouble with WeWork over its former name, UrWork. WeWork sued over trademark issues last year and UrWork agreed to change its name to UCommune. Mao said that UrWork had outgrown its original name, as it morphed into community-oriented services.
The coworking market in both the U.S. and China has taken off with the entrepreneurial boom. It is part of the sharing economy that has caught on in China, along with shared bicycles, umbrellas, basketballs, living spaces, etc.
The office-sharing trend has grown in popularity with young entrepreneurs, as well as freelancers setting up their own shops. These flexible offices offer such frills as free coffee, workout rooms, high-design conference areas, cozy sofas and chairs, ping-pong tables, and endless meet-up and tech events hosted by partners. These sorts of spaces help the creative juices flow at young, innovative companies not bogged down yet by bureaucracy.
One of Naked Hub’s locations in central Beijing even sports a swimming pool. This is nothing like the faceless corporate office environments with rows of cubicles and few windows for workers to gaze out from in a high-rise building. These state-of-the-art coworking locations are packed in leading tech innovation hubs around the world, and the race is on to expand and fill up more with ambitious founders and their teams.
The global market for coworking office space, which only began about 10 years ago with WeWork, has already reached mass scale; Statista predicts that there will be about 18,900 locations this year worldwide. Asia has the most coworking spaces, with about 4,000, followed by the U.S. at 3,200. The market is forecasted to triple by 2022 to 30,432 locations and 5.1 million members, according to the Global Coworking Unconference Conference, up from 14,411 spaces and 1.7 million members currently.
Today, it is about providing founders with an edge in innovation that will help their startups scale.
In the race to become dominant players, attracting ample funding has been a big part of the strategy. WeWork, for instance, has hit unicorn status with its massive $4.4 billion investment in 2017 from Japan’s Softbank Group. Much of WeWork’s growth is coming from overseas, and it has recently opened operations in Tokyo and Singapore. UCommune has pulled in $175 million from heavyweight investors, including Sequoia Capital, ZhenFund, Matrix Partners and Sinovation Ventures. UCommune founder Mao is looking to raise another $200 million to expand along China’s newly developing Belt and Road area. Kr Space raised Series A financing of $31 million in 2016, co-led by IDG Capital and Prometheus Capital, followed by a $94 million round, with IDG participating again.
Southeast Asia is the next market after which the office space contenders are going. The high-growth region, with many cultural similarities to China, is considered the next China, in terms of opportunity. WeWork acquired Singapore’s Spacemob to spearhead its expansion into the region, while UCommune bought Jakarta-based ReWork.
The office-sharing economy has become so competitive, particularly in China’s tier-one cities, that it is no longer enough just to offer space and some perks. Today, it is about providing founders with an edge in innovation that will help their startups scale. DayDayUp, which operates spaces in Beijing and San Francisco, prides itself on being an innovation community and not a coworking space. It’s all about making business connections, from potential investors, to corporate strategic partners, says Helena Javitte, director of innovation programs at DayDayUp. Accelerator programs to help startups ramp up are also part of the mix.
Somewhat similarly, in New York, Lair East Labs offers office space as part of its cross-border accelerator program that caters to founders who are launching businesses in the U.S. and want to gain access to the Chinese market. Program manager Jennifer Pei Lei says there’s no shortage of young founders eager to get into this program and figure out how to enter China.