WeWork is reportedly purchasing one of its major competitors in China – naked Hub. This comes hot on the heels of a merger between naked Hub and competitor JustCo being called off – a deal which would have made the new entity a viable competitor for WeWork.
This is being seen by many as a retreat. With no other way to compete, analysts have said that either naked Hub was going to have to go on a spending spree – unlikely, as their parent company does not have the resources to compete with WeWork – or sell some or all of the business. If this is the case, it’s a smart move but also an early surrender for a business that quickly came to dominate a highly competitive industry.
Naked Hub counts GoPro and Chinese social media network Douban amongst its tenants. It has, since its foundation in 2015, managed to grow to more than 30 locations, with solid tenancy and a solid mix of tenants. The challenge for larger shared working spaces – especially those spread over different cities – is similar to shopping malls. They need to find, “anchor tenants” which will bring in stable income and attract medium-sized businesses, and then fill up the remaining space with enough small businesses to maintain the feeling of a buzzing office. Many shared working spaces have failed due to a lack of anchor tenants, or consistent appearances from their smaller tenants.
This fact was not lost on naked Hub who worked hard to attract and delight major businesses; according to the company, more than 40% of their tenants are multinationals.
With this takeover, WeWork will be hoping to dominate the Chinese shared workspace market, but naked Hub was far from the only growing player. Amongst them, Ucommune is probably the most significant, and WeWork has already found itself in court with them due to naming issues.
The biggest concern for any shared workspace in China is also the biggest opportunity. Growth is exponential, and investors – at least at this stage – are willing to put their money where their mouth is. WeWork is attempting to capitalise before another competitor steamrolls into the market, but the underlying business model is still somewhat flawed – WeWork doesn’t own anything and if a significant region – such as China – were to take a hit, then reduce tenancy could mean loss sites and a potential domino effect. Perhaps it’s time for WeWork to consider a hedge, perhaps some investment in commercial real estate.