A revenue-sharing agreement would see landlords inject funds or reduce their tenant’s upfront payment as well as in return have a share of your workspace provider’s cash flow
Interior of WeWork, a shared place of work place, in Causeway Bay. Image: Jonathan Wong
How do you keep charges down if you would like to aggressively increase your online business in the world’s most expensive workplace area?
US co-working area supplier WeWork thinks it has the solution. It will attempt to persuade Hong Kong’s professional landlords to enter into revenue-sharing arrangements mainly because it usually takes up new locations.
Whether it is equipped to convince landlords to change away from the conventional fixed-rent product, all people stands to gain, based on Christian Lee, vice-chairman of WeWork Asia.
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“We’ve adopted this plan in other areas of the area,” reported Lee. “Landlords maintain their management above the property but carry in WeWork to operate the creating with them. After we speak to the landlords, we permit them know that as a result of [this type of] lease, we make far more plus they make additional.”
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A revenue-sharing agreement - or “participating lease”, as WeWork has picked to call it - would see landlords partner with WeWork both by injecting capital or decreasing their tenant’s upfront payment as well as in return, take a share on the workspace provider’s revenue. WeWork would also assistance to handle the developing, if that shaped component of a certain agreement.
But some analysts feel persuading Hong Kong’s landlords to abandon their favoured fixed monthly rental income in favour of the new enterprise model will probably be much easier explained than accomplished.
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“Landlords in Hong Kong are quite traditional so why would they put themselves in such a difficult position and share the risks with co-working operators?” said David Ji, head of research and consultancy at Knight Frank.
Office environment rents in Hong Kong’s prestigious Central district have soared 7.5 per cent in 2018, forcing a number of law firms, finance companies and even investment banks to relocate to cheaper areas such as Wong Chuk Hang and Kowloon East. Commercial rents there are generally between a third and a half what they are in Central.
WeWork has already inked a revenue-sharing agreement with Daman Land in Malaysia, and with global supply chain manager Fung Group, which owns the LiFung plaza in Shanghai.
The arrangement allowed Fung Group to “maximise the use of our buildings that cater towards the changing needs of tenants and utilise the house additional effectively,” said Belinda Fung, chairman of Fung properties China, the real estate arm of Hong Kong-listed Fung Group.
“The strategic partnership allows us to generate greater returns than a traditional leasing model.”
WeWork on Tuesday launched its eighth location in Hong Kong, with more than 1,000 desks spread above 17 floors of LKF Tower in Central.
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Next year, it plans to open four far more, one in the International Commerce Centre, one within the Quayside in Kowloon, one at Hysan place and another at Lee Garden One.
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Market observers believe a revenue-sharing scheme could provide a buffer zone for co-working operators in Hong Kong if the market turns sour.
“We’ve seen some operators paying a rather aggressively high rent while in the past two years in order to realize market share. Now, amid the rising uncertainties, they will probably be under pressure as rents aren’t expect to increase much because of softening demand,” stated Denis Ma, head of research at JLL Hong Kong. “Such a business model could minimise risk through a reduced upfront payment and a shared partnership with landlords’ injection of funds investment.”
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