WeWork doesn’t work in Hong Kong

November 07, 2019 11:52
WeWork plans to cut by half its co-working sites in Hong Kong as part of its restructuring moves. Photo: Reuters

Just how dire the situation is for WeWork right now could be seen in its operations here in Hong Kong, where its business model seemed well-suited given the stratospheric rates of office spaces in the international financial hub. 

The high-flying co-working space startup, once the darling of investors in the new economy, plans to cut by nearly half its sites in the territory. That means giving up at least six of its locations here.

Currently, WeWork has 15 sites in Hong Kong, according to its website, which it sells as hot desks or flexible workspaces to local entrepreneurs and freelancers.

Just three months ago, the company took up a nine-year lease on four stories of Hopewell Centre in Wan Chai, or a combined 60,000 square feet. Now it wants to sublet half of the area. 

It has similar plans for its leases on Sunlife Tower in Tsim Sha Tsui, where it has yet to move in, according to local newspaper reports.

Earlier this year, when it was still in an expansion mode, WeWork leased seven new locations, including those in Central, Causeway Bay, Tsim Sha Tsui and Kwun Tong.

But all the frenzied pursuit of scale halted after the company, backed by SoftBank Group, shelved its initial public offering plans because its valuation had dropped from US$47 billion at its peak to below US$6 billion.

That's way below the initial US$10 billion that SoftBank had invested in the Manhattan-based startup. And in a move that appeared to be throwing good money after bad, the Japanese investment group put another US$9.5 billion into WeWork, boosting its share in the company to 80 percent from 30 percent.

So what to do with a company that is burning cash so aggressively but showing no clear signs of being able to achieve profitability anytime soon?

After co-founder Adam Neumann was eased out as chief executive, the company is now undergoing a painful restructuring.

Shedding its co-working sites is not an easy thing to do in Hong Kong, whose economy is reeling from months of unrest.

Even before the protests broke out in June, the city has seen a huge oversupply of co-working spaces. Over 200 firms are jostling for clients and slashing their rates, which now range from HK$3,000 to HK$5,000 per hot desk.

Amid the intense competition, prices are expected to fall further.

I recently visited a soon-to-open co-working restaurant in Tin Hau. The space is being leased out from 9 a.m. to 5 p.m., after which another operator takes over.

The rent is as low as HK$1,000 per month for a one-year contract. The operator also leases out 10 other co-working restaurant sites.

If you think that's almost free of charge, there's another co-working restaurant in Sheung Wan which could be leased for HK$500 per month for three months.

That's the kind of situation WeWork has to work with in this line of business.

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CG

EJ Insight writer