The Executive Centre finds a market with in-house baristas, plush sofas in the luxury niche of Hong Kong's co-working space

By Cheryl Arcibal cheryl.arcibal@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3007114/executive-centre-finds-market-house-baristas-plush-sofas?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | April 23, 2019 6:21 PM SGT
Office space operator The Executive Centre (TEC) believes that it has found a market in the luxury niche of Hong Kong's growing number of co-working space operators, as a strategy to survive the overcrowded market.
"I think of [the co-working sector] as the economy class of a flight," said TEC's chairman and chief executive Paul Salnikow. "We create locations across Asia where multinationals can settle in."
Multinational firms (MNCs), which make up 76 per cent of clients, stay with TEC for 36 months on average, three times the industry's tenancy, and for a 50 per cent premium over the rates offered by other co-working space providers like WeWork, Salnikow said.
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Founded in 1994, TEC has over 130 centres in 32 cities, in 14 countries, mostly in Asia, including Australia and the United Arab Emirates. It provides private, virtual, and co-working spaces, each equipped with the usual meeting facilities, video conferencing and business concierge services. But TEC claims to do one better, offering in-house baristas, plush sofas and elegant meeting rooms comparable to the best in upscale hotels, the executive said.
The Executive Centre's locations in Hong Kong include Prosperity Tower, Three Garden Road, and One IFC Hong Kong, among others. Photo: Handout
"What [other co-working operators] fail to realise is that renting space and fitting it out is just the beginning of the journey," he said, adding that the renewal rate is 3.3 times. "You have to have a reason for people to occupy your space over and over again."
Co-working space operators currently occupy about 2.16 million square feet (200,000 square metres) in Hong Kong, according to global real estate services Savills, doubling in size since the end of 2017.
Paul Salnikow, founder and chief executive of The Executive Centre, on 26 March 2015. Photo: SCMP
KrSpace, one of China's biggest co-working space operators, cancelled a five-year lease for seven floors at ChinaChem's One Hennessy building in Wan Chai recently, highlighting Hong Kong's tough operating environment. Chinachem is suing KrSpace for HK$500.9 million (US$63.8 million) for breach of contract.
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Funding from venture capitalists has also dried up. KrSpace's last capital injection of US$92 million came in January 2018. SoftBank announced US$2 billion in funding for WeWork in January, which was much smaller than expected by the market.
The offices of TEC, the third-largest serviced office business in Asia with annual turnover in excess of US$200 million, are located in core central business district areas, and prime office buildings. In Hong Kong, TEC offices are in One IFC Hong Kong, Three Garden Road, and The Hong Kong Club Building, among others.
The Executive Centre's locations in Hong Kong include Prosperity Tower, Three Garden Road, and One IFC Hong Kong, among others. Photo: Handout
Salnikow said TEC's biggest markets are China, Hong Kong, India, and Japan.
"We're achieving margins of above 25 per cent, so that's a really good financial result, and we have been growing our profit on an annual basis by about 20 per cent since 2005," he said. "We target growth of 20 per cent of capacity per annum, we're not scaling back."
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The luxury office space market in Hong Kong has recently gained another player with the entry of Singapore-based The Great Room. It opened its first 24,000 sq ft centre at One Taikoo Place in Quarry Bay " home to Facebook, E&Y and Baker McKenzie, on April 11.
The Executive Centre's locations in Hong Kong include Prosperity Tower, Three Garden Road, and One IFC Hong Kong, among others. Photo: Handout
Thomas Hui, chief executive of theDesk, which positions itself as a premium brand in co-working space, said he regards TEC as a service office that doesn't compete directly with other co-working space operators.
"TEC's clients are still in finance, and also investment and so this type of clients are still slower to switch to co-working space," Hui said. "It's just like in the media industry, print is declining, but older people still prefer to have the print. This is the analogy I would use for The Executive Centre because their position is premium."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.