Meeting Rooms

Second Landlord, No Shame!

15.11.2019

WeWork’s prospectus is like a blockbuster, causing huge waves in the US and global capital markets. In just over a month, WeWork has become a hot topic of global public comments and discussions. Various media have repeatedly reported the news, questioning with doubts and comments, and the “pride of the sky” has become a “street mouse.”

From the evaluation logic of WeWork to the review of Softbank’s investment strategy, from WeWork’s corporate governing structure to whether the directors who represent the interests of investors is responsible,  what exactly is the coworking spaces industry? Is it a bubble blown up by a capital predator? Or is it a real estate leasing industry that has been played out? Is it the second landlord of the new era, or is it another unicorn? The astronomical capital injection is not just blood, but also adrenaline.

Softbank CEO Sun Zheng felt that WeWork’s CEO, Neumann was crazy, so he chose to invest in WeWork. However, Sun Zheng warned that Neumann would be even more insane to grow revenue to hundreds of billions of dollars. As a result, WeWork’s format is more and more like Softbank. Thus, it becomes what it is today.

WeWork was born under the background of a weak real estate market. Its original intention was to provide freelancers and start-ups individuals with decent and affordable office space.

With comprehensive market research, Neumann found that freelancers and start-ups lack professional and commercial resources and gradually realized that coworking office space should be a community that can brainstorm and share resources, so WeWork began to organize various Community activities to help members get additional value-added services.

He discovered that office space could serve as an incubation center for science and technology enterprises, and believed that it could share premium income by helping members grow and participate as an investor, which was a fantastic idea.

Perhaps Softbank CEO Sun Zhengyi is optimistic about this because it can scale investment and incubate the “next Alibaba.” However, with the expansion of cross-border and the rapid increase in the number of spaces, Neumann found that there were not as many science and technology Start-ups, and most of the tenants were enterprises from all walks of life, like marketing departments of multinational organizations.

As a result, WeWork made a strategic adjustment and began to customize the office space for more significant numbers of customers. However, when they found out that the property rent was a heavy burden, WeWork started to acquire the properties under their own to create new coworking space centers. From the perspective of the second landlord, such ideas and logic are correct.

Just like a noodle restaurant owner with a unique recipe and entrepreneurial passion, he wants to make one of the world’s largest chain noodle franchise, and also attracts a considerable investment, but his reasons make his career fall short. We can’t ignore the quality of the noodle restaurant because of the boss’s problems, and we can’t refuse to eat noodles.

A coworking space operator is just the second landlord. It is a capital predator who try to exaggerate it a technology star. Hot pot has existed for more than 1,700 years. HAIDILAO made a smart restaurant in Beijing last year, implementing technology and smart tablets. Does it mean it isn’t hot pot? The speed of China’s high-speed rail has reached the speed of the plane’s take-off. Does it mean its not a train but an airplane?

The second landlord concept has been around for more than 100 years. However, just as all the traditional office operators are continually upgrading and changing to keep up with the times and technology, the second landlord is also improving towards The internet era… Different from the traditional landlord, the coworking space industry has unique market value and social value.

Is there a future for Coworking space?

Coworking space operators have created and boost value for commercial property owners. Since 2010, the growth period of the coworking space business is just a period of weakness in commercial real estate. Coworking office space not only fills up the vacant area of ​​a large number of commercial real estate but also increase the rentals price of these.

The area of ​​all coworking space in Singapore has increased from 1.2 million square feet in 2015 to 3.7 million square feet. Since the beginning of the fourth quarter of 2017, property rents in the CBD area have increased by more than 20%.

Since the number of office members of a coworking space is generally higher than that of traditional offices, coworking spaces properties often provide services such as shopping, catering, entertainment, etc. Coworking spaces also bring a large number of daily consumer traffic to the property itself. As a lease period for a coworking space is generally more than five years, which plays a crucial role in stabilizing property rent.

At the same time, to further expand and increase functionality, some operators are gradually placing coworking space offices with retail malls or hotels. Some owners are also planning to take advantage of existing real estate resources and create their coworking spaces brands. It could be said that the emergence of coworking spaces not only stabilizes the rental market but also provides owners with more choices of property use. 

Coworking space solves the efforts and hassles of selecting a location, designing, decorating, screening of renovation materials, furniture procurement and maintenance, water and electricity set up any utility payments as it enables tenants to be able to avoid the cumbersome and time-consuming matters but achieves the convenience of ready move in, flexible lease period and significantly helps to reduce the costs associated with office set up.  

Public areas such as business community lounges, pantry areas, phone booths, and meetings rooms spaces cover more than 50% of the total office space, which is an unattainable enjoyment of traditional offices, which is loved by young people who grew up in the Internet age. Because of this, Google, Facebook, Microsoft, and other Internet giants offices are all design like a Coworking space.

Nowadays, coworking space operators have converted public access spaces into commercial communities giving members/tenants extensive access to information, interaction, resource, and different channels of business opportunities.

Coworking space indeed brings excellent social value as you can see for this instance, the lease term of a coworking space operator is generally more than five years while a traditional office space lease term is typically 12-24 months. Therefore in this aspect, the amount of waste from a renovation in a coworking space is reduced by at least two times compared with a traditional office, and the labor work required would also decrease accordingly. In this way, it not only saves resources, reduces environmental waste, but also helps those countries which generally rely on foreign workers such as Singapore to bring down the need for hiring foreign labor.

On the other hand, a city’s real estate prices and property rents are too high to curb economic activity, and coworking space operators rent properties in large-area, long-term leases, enabling freelancers, science and technology companies, SMEs and Branches of large enterprise groups are able to stay in a pleasant environment and fully furnished office space at a low cost.

In the early days, second-hand landlords rented out property without even dividing into a simple division to obtain the wholesale and retail balance in prices. After decades of improvements, the second-hand landlord has made progress in integrating the property, designs, and decorations and includes other productive and meaning resources to meet the needs customers. In this way, the introduction of the concepts of coworking space has opened up to broader and further developments in this industry.

Today’s coworking space operators, such as WeWork and Regus, have not only professional designers, engineers, but also professional space optimization technicians, artists, and scientists working together to create a more efficient atmosphere and functionality for customers and Inspiring workspace.

But this only opens a window for the advancement of office space. An excellent office space design is an organic integration of aesthetic design, functional design, and ecological design, all of which are indispensable. The aesthetic design focuses on the beauty of color, the technical design focuses on office space and function optimization, and ecological design focuses on the optimization of indoor light, air, sound, and other elements,  and builds indoor plant ecology to create a relaxed and healthy working environment.

The current concepts or designs of aesthetic office space have shortcomings in the above three aspects, especially the ecological design, which has been seriously neglected for a long time. The number of people working in coworking spaces offices is often twice as large as traditional office space, and even higher, and the requirements for the ecological design of the office environment are also higher.

The indoor working space is the indoor environment where the intensive office people stay in for a long time. The essence of office space is the place where people work. It is people-oriented, and people’s physical and mental health is the foundation! If you only pay attention to the luxurious materials, furniture, and equipment, and ignore the impact of the space on people’s physical and mental health, what will happen to the tenant´s health?

Today, 5G has emerged. The Internet has become the basic configuration of office space like water and electricity. However, whether the indoor environment of this conducive to the physical and mental health of the dense population living in it has not been concerned, therefore, ecological design and optimization for the indoor environment of office space will be the focus of highlighting the connotation of science and technology.

After all, shared office space is an indoor environment in which people work for a long time. Whether the environment is beneficial to the physical and mental health of the people directly affects the work efficiency and performance of the workers. Many companies give employees free coffee, tea, fruits, cakes or snacks, as well as adequate medical insurance, but do they pay enough attention to the office environment that affects their physical and mental health?

From the perspective of this industry, the operating mode of coworking space is the second landlord, that is, renting in and renting out. Therefore, the rental income must be the primary business income. However, it is necessary to give full play to the value-added benefits of public space resources, facilities, equipment, and provide value-added services to tenants and members through community activities.

In the United States, some bars, restaurants, and hotels rent unused space and facilities for certain times of the day as shared office space, which can maximize the utility of various real estate resources and gradually change the real estate industry to its benefit.

As coworking space becomes a new trend in the property business, each operator is improving and innovating in different levels and angles. Although a coworking space operator is at most a corporate tenant, an enterprise is made up of different people, and different people will have a diverse variety of needs and requirements; thus, a coworking space should naturally be also equipped in a diverse variety of ways.

Nowadays, coworking spaces are not only loved by freelancers and small and medium-sized enterprises but since 2018, many large Multinationals have realized the value of coworking space. Currently, the coworking space industry is still a booming industry, and the operators’ concepts and models should be diversified to meet the needs of different customers.

With the growth of a new generation of entrepreneurs who are free-minded and open, the coworking space industry is bound to keep up the pace with the times and continue to grow.

 

O2Work: Robert  LI

NUS Business School Professor: Junhong CHU

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