Lower rents as a result of revenue-sharing leases

  A revenue-sharing settlement would see landlords inject capital or decreased their tenant’s upfront payment as well as in return take a share of your workspace provider’s earnings

  Inside of WeWork, a shared business office place, in Causeway Bay. Image: Jonathan Wong

  How can you hold expenditures down if you would like to aggressively extend your enterprise within the world’s most costly office environment location?

  US co-working house service provider WeWork thinks it's the answer. It'll make an effort to persuade Hong Kong’s professional landlords to enter into revenue-sharing arrangements because it will take up new areas.

  Whether it is equipped to convince landlords to shift faraway from the traditional fixed-rent model, every person stands to realize, in keeping with Christian Lee, vice-chairman of WeWork Asia.

  “We’ve adopted this plan in other areas of the area,” explained Lee. “Landlords keep their manage more than the property but deliver in WeWork to operate the constructing with them. Whenever we check with the landlords, we enable them understand that via [this kind of] lease, we make additional plus they make a lot more.”

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  A revenue-sharing agreement - or “participating lease”, as WeWork has chosen 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, have a share from the workspace provider’s cash flow. WeWork would also assistance to deal with the creating, if that fashioned a part of a selected agreement.

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  But some analysts imagine persuading Hong Kong’s landlords to abandon their favoured mounted month-to-month rental revenue in favour with the new company design will probably be less difficult said than done.

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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?” explained David Ji, head of research and consultancy at Knight Frank.

  place of work 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 arrangement 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 into the changing needs of tenants and utilise the room a lot more effectively,” claimed 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 design.”

  WeWork on Tuesday launched its eighth place in Hong Kong, with much more than 1,000 desks spread more than 17 floors of LKF Tower in Central.

  Next year, it plans to open four more, one inside the International Commerce Centre, one from the Quayside in Kowloon, one at Hysan Area and another at Lee Garden One.

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  Market observers believe a revenue-sharing plan 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 lease within the past two years in order to get 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,” said Denis Ma, head of research at JLL Hong Kong. “Such a small business product could minimise risk by a reduce upfront payment and a shared partnership with landlords’ injection of cash investment.”


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