Co-working firm braves the unrest, moves into Hong Kong’s priciest tower
Victory Offices, an Australian co-working space operator, has opened its first location in Hong Kong – on the 76th floor of the iconic The Center skyscraper – braving the city’s ongoing political crisis and a crowded, highly competitive shared office market.
The company has leased a 25,000-sq-ft space near the top of The Center, the city’s most expensive office tower, in the main business district.
Victory’s foray into Hong Kong – its first overseas – comes as the city’s economy teeters on the brink of recession as more than three months of social unrest take a heavy toll on tourist and retail numbers. The political turmoil has shaken business confidence enough for The Executive Centre (TEC), another shared office provider, to defer a US$750 million ($1.03 billion) share sale by its owners.
Victory is undeterred by the unrest, though chief executive officer Dan Baxter admitted the decision was taken before Hong Kong’s massive street rallies began.
“We are in a growth trajectory at the moment and we are expanding. Hong Kong is the gateway to Asia and it’s got great connectivity. Opportunity was right for us, and we’re here,” said Baxter.
“We already committed to Hong Kong some six months back. It’s not just that we entered Hong Kong this month – it takes six months to do a fit-out, to sort out the agreement, and at the time there was no unrest. Even though there’s political tension, business is going as usual.
“Political unrest is there. I don’t think it is killing business, but of course there’s going to be ups and downs.”
Owners of individual floors in The Center recently began to cut rents for the first time as the anti-government protests forced many companies to postpone their expansion plans. A consortium of super-wealthy investors had paid US$5.15 billion for The Center – in the world’s most expensive real estate transaction ever – when they bought it off Hong Kong’s richest man, Li Ka-shing, in May 2018.
Founded in 2013 in Melbourne, and currently with 24 centres, Victory Offices is the second-largest provider of shared office space in Australia. Clients include Warren Buffett’s Berkshire Hathaway, Haliburton, and Ritz Carlton. Average occupancy in its Australian centres is 85%, while the renewal rate is 60%.
In Hong Kong, its new space can accommodate up to 40 companies. The company said it is “actively looking” for other centres in the city.
There are an estimated 100 co-working operators in the city, making it a very challenging market.
Nonetheless, there is room for more providers at the more upmarket end of the scale, said Sam Harvey-Jones, managing director of occupier services, Asia, Colliers International.
“There is space in the market for additional operators, we see the white space in the market being premium product in Grade A buildings at enterprise scale,” said Harvey-Jones.
Operators themselves are less sanguine about the outlook for the sector.
“The co-working market is too crowded. In most of Asia, there were no co-working operators as recently as 2016,” said Paul Salnikow, founder and chief executive at TEC. “Then a host of speculative investors funded the simultaneous launch of multiple co-working start-ups, all offering minor variations of the same product.”
Small players, whose centres are in the non-prime locations, are struggling the most, according to Thomas Hui, chief executive at theDesk.
“Two types of players are struggling the most. The first are those with smaller scale, their scale doesn’t justify enough resources to build their brand and community,” he said. “The second are those located in less prime locations such as East Kowloon. Companies in these locations are mainly back offices which may not value the core values of co-working – flexibility and community.”
This story first appeared in the South China Morning Post on Sept 17.