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Co-Working in China

Chinese Co-Working Startup Balances Tradition and Innovation

On May 22, MIT hosted its annual World Real Estate Forum. One of the panels at the event was dedicated to China Future City Lab, an entrepreneurship program that focuses on the urban development in China.

As WeWork continues to expand, co-working is also becoming a global movement. China — with its rising millennial workforce, government support for innovation and entrepreneurship, changing public attitude towards the sharing economy, and huge market size — make the country fertile ground for co-working spaces. According to the report released by iResearch, the coworking market in China reached 4.29 billion yuan ($650 million) in 2016, and the number is expected to hit 9.35 billion yuan ($1.4 billion) by 2019.

Mr. Jian Zhang, the CEO and co-founder of Nash Work, one of the biggest co-working players based in Beijing, was one of the panelists. Founded in 2013, Nash Work has raised $34.5 million. Its Series B was funded by Yung Park, a private equity firm headed by David Loh, the ex-CEO of Mapletree – a unit of Singapore’s Temasek Holdings. Now, Nash Work claims to serve 10,000 enterprises in four cities including Beijing, Shanghai, Shenzhen, and Tianjin.

Mr. Zhang is also known as “Wuxie” at Nash Work. As part of the company culture, Nash Work likes to give its employees a nickname. Zhang, a Tsinghua graduate, worked in real estate for 15 years before starting Nash Work.

Inside the “Super Studio” (超级工作室)

Unlike WeWork, Nash Work is pursuing a different business model in co-working. Instead of creating a community working environment, Nash Work pushed an idea called “Super Studio”, which allows enterprises to have its independent office spaces in the shared community.

According to Zhang, the “Super Studio” concept is designed to cater to the needs of a specific customer group: lawyers and the accountants. As he told us in an exclusive one-on-one interview, “From our research, we found many companies prefer independent and exclusive meeting rooms, executive rooms, and separate entry. A lot of our clients are boutique law firms, accounting firms, and advertising firms, and they require higher level of privacy, which is harder to provide in a co-working environment.”

Many may think the “Super Studio” defeats the purpose of co-working, which is to allow its users to feel a sense of community. Zhang argued the “Super Studio” can provide companies the highest level of privacy and independence, while allowing them to enjoy the benefits of co-working, such as the social events and shared third party services. Nash Work entered into partnerships with third party services providers to offer their members with additional business services, ranging from information technology, legal, cloud services, and human resources.

It has been two years since Nash Work started the “Super Studio”. The concept helped the firm attracted many enterprise clients. Forty percent of Nash Work’s existing clients are boutique professional services firms. With WeWork expanding globally using its billions in capital, having a differentiated product and specific target customer group might be a smart strategy to carve out a seat at the co-working table.

Difference between the U.S. and China

Compared to the U.S. and European markets, co-working in China is relatively in the early stage. Many flex space operators are offering favorable prices and attractive social programs to onboard users. While many global players are attracted to China’s market size, foreign brands rarely become successful unless they adopt a local strategy. Zhang identified three biggest differences between two countries’ co-working markets.

“I think income level is the biggest difference.” Zhang said, referring to WeWork’s stagnated growth in China when it first entered in 2016 due to the sky-high membership fees. “Realizing China’s income level is still far below the U.S. will help firms come up with the right pricing strategy.”

The foreign co-working players make their spaces like cafés, but many Chinese don’t drink coffee – it is not part of the culture.

“There is also the culture difference,” he added, “The foreign co-working players make their spaces like cafés, but many Chinese don’t drink coffee – it is not part of the culture. In our spaces, we have installed tea rooms, especially in our locations in Shenzhen, we have Kung Fu tea for our users from Chaozhou and Fujian.”

The last difference, according to Zhang, is the style of communication, which also inspired Nash Work to start the Super Studio. “Chinese are more subtle. For example, Americans can easily mingle during happy hours. But for Chinese, unless they know or are introduced to each other, they may not speak even if the room has only two people.” In addition to protecting privacy and providing independence, Zhang said, “The Super Studio can benefit people who want to stay in their comfort zone.”

An opinion on WeWork’s acquisition of Naked Hub

In April 2018, WeWork acquired one of the biggest coworking brands in China, Naked Hub, a major competitor, for $400 million. Naked Group was started by two foreigners as a China-based resort company in 2015. It quickly moved into co-working and now has around 10,000 members across 24 offices mainly located in Shanghai and Beijing as is know for a high end spaces with a hospitality industry feel.

When asked about this acquisition, Zhang said, “We will see more consolidation in our industry as everyone is looking to achieve economies of scale and higher brand recognition. WeWork and Naked Hub are both targeting mid-to-high end customers. There is a natural fit. I don’t think it would influence us as Nash is targeting different customer base. WeWork focuses on helping American companies expand globally. Nash Work wants to help Chinese companies expand nationally. We serve more local [Chinese] firms.”

Are developers going into co-working in China?

Across the world traditional office landlords, either by themselves or by partnering with an operator, are embracing co-working concepts to give life to their buildings. For example, Boston Properties and Rudin Development are bringing in WeWork as the anchor tenant and letting the co-working unicorn build a “New High Performance Workspace” on their Dock 72 office development located in Brooklyn Navy Yard. In China, SoHo China, one of the country’s largest real estate developers, built a co-working brand called 3Q with presence in tier one Chinese cities. Bur is the proliferation of co-working inviting local developers to enter the space?

Nash Work has already worked with many developers and property owners, including Country Garden and China Red Star Macalline, one of China’s biggest furniture companies. Zhang said, “We are very flexible in cooperating with developers as long as it is a win-win situation.”

You need expertise doing anything. One thing we know: so far, no developer has built a successful co-working brand.

He also does not think Chinese developers are interested in the co-working business. “Developing and operating are very different businesses. Some developers may find the margin in co-working too low.” He added, “You need expertise doing anything. One thing we know: so far, no developer has built a successful co-working brand. Even if they will, people will best know them as a developer, not a co-working brand.”

A look into the future

Another major trend in the co-working industry is that many players are occupying non-office buildings, especially retail properties. With the retail sector shifting away from traditional brick-and-mortar stores towards a smaller and experience-led offering, coworking firms are taking advantage of the vacant retail properties coming to market.

In China, according to Zhang, this trend is also taking place. In early May, Nash Work signed a lease to take over Macalline’s old furniture mall in Beijing. “The total area is about 30,000 square meters (~323,000 sf). This will be the biggest co-working space in Beijing. We want to reposition the space to a mixed-use commercial space that integrates co-working, retail, fitness centers, library, café, convenience store, and even galleries. All amenities will be accessible to our members. When people are spending more than eight hours at work, why don’t we make the space more interesting for them?”

Zhang’s vision for the future is bold. He wants to build an ecosystem, with co-working at its core. One that has the nuances of the Chinese culture in mind and one that truly connects people and creates partnerships among firms within the community. Chinese entrepreneurship has already changed the world. Now, we will see if the world can change Chinese entrepreneurship.

The interview was in Chinese. The author translated the content into English.

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