Max Henry on Co-Working Space in Shanghai

Max Henry has been working in China since 1997, and has been running his own business for about 15 years in Asia. He's the founder of Asia-based entrepreneurs network Entrepnr, a platform "where entrepreneurs from all sectors and industries can exchange advice to make smart decisions and succeed in Asia."

 Like many entrepreneurs who have growing demands for a mobile and flexible workplace, over the years, Henry and his team have been transitioning to a more "virtual" working environment.

Then the co-working space trend started to boom in China.

According to Henry, there are now over 200 co-working spaces in Shanghai, and the number is still increasing. After testing out many of them in the downtown area, Henry and his team have created a "The Best Hot Desks in Shanghai" guide – a map consisting of over 10 of what he and his team think as the best hot desks in Shanghai. 

Creativehunt had a chat with Henry after the guide came out. Outspoken and passionate about the co-working industry, Henry has many interesting insights to share about his experience with co-working spaces in Shanghai. 

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CH: So what's the backstory? How did the co-working space guide come about?

MH: It started about two years ago, I left my full-time office and started to experiment with working in co-working spaces. Because I was getting tired of being isolated from other entrepreneurs, I want to interact with them on a daily basis.

So I joined a very "local" co-working space on Kaixuan Lu called the Node. It was a terrible experience because it's not very well-managed. We had a huge office for ourselves but it was very little management, and the type of people coming in weren't the people we were looking to interact with.

We left after working there for three or four months. At that time, naked Hub was starting, and one of the founders asked me to join. I was one of the first members of their Fuxing Lu location.

I had been their member for about 16 months. During that period, I got a chance to observe the trend develop -- to see issues concerning the managing of a space, and to see how they went about building up a community and maintaining their members. From there, I started to get interested in the other co-working spaces, so I started to visit a lot of these places, and talk to the people of this industry. Last September, we had our first co-working forums at naked Hub.  And I started to realize how difficult of a market it is right now in Shanghai. There are a lot of operators and investors; it's kind of a bubble. The next real estate bubble in China.

The overall take-away is that it's true that people are looking for more flexible arrangements and moving away from traditional office spaces, and I think that co-working space gives people and companies that, but if you look at the cost, it's not cheap. So, currently, co-working spaces are not viable for start-up entrepreneurs or small or medium size companies. If you're working with more than 10 people, you're better off staying in your own office. It just doesn't make sense financially to do it any other way.

naked Hub in Xintiandi

CH: So, to back up a bit, what is your definition of co-working space? What exactly are you looking for? Because I feel like many operators don't really understand the concept. 

 MH: You're very right. The big problem in China, and probably in Asia as well, is that co-working spaces aren't co-working spaces – they are just working spaces. They are cheaper, more casual, a "funkier" place to be, they're open. So it's more of an open environment, but there's not really much co-working going on. There's no community.

It's very difficult from an environment point of view to actually do some really good work there. A lot of operators would say they do events all the time. But when you looking at what they do, most of these events are just people drinking beer and having a good time, but does it really help you to reach out clients, suppliers, and form partnership with other tenants? It didn't really work that way. 

So if you look at them, whether it's big operators like WeWork and naked Hub, or smaller players. In most cases, the community is really, really weak.

I think people are trying, and a lot of people are moving in, but a lot of people are also moving out. Because they realize after six months or over a year, it's a cool place to work, but what else do I get?

CH: So there is a problem with operators not recognizing the importance of building up a good community?

MH: I think they understand that the community is key to success. But they are so busy expanding, trying to get their market share, and they put the community aspect on the side. Right now, if you talk to China-originating operators, they are obsessed with expansion.

I think over the long term, success will really depend on how successful an operator is able to grow a community in their space. But right now it's obviously not their priority. It's a pity.

CH: Is this more of a Shanghai-specific problem or is it a trend elsewhere as well?

MH: I think it's a China issue. I've traveled in Asia and have been to European co-working space as well. The best communities usually happen in smaller spaces. Because smaller spaces have tighter group of people who know each other.

These tighter and more independent space tend to be run by the founders themselves. So the founder is there every day, bring people together, and it seems more of a personal touch. It's like running a restaurant. If an owner of a restaurant is always there to welcome clients, it makes a big difference. Co-working spaces are the same; it's  hospitality. When you are running multiple locations, managing a community is very difficult to do.

And this is why we made the guide. We realized that, why should you pay 1800rmb-2000rmb at WeWork or naked Hub for cheap desks, when you can get the same desks or even better desks in free spaces?

Sandbox was the first one to disrupt the sector and say "hot desks are not going to make money, we're not going to charge -- hot desks are about becoming a community". They saw it coming a long time ago. I'm not saying the free model is the way to go. If you look at the guide right now, the benchmark for me is SOHO 3Q. To me, it's the five-star hotel of co-working. If you think naked Hub and WeWork are nice, you should go to SOHO 3Q.  In terms of environment and the quality of the desk and seating, SOHO is the benchmark. So if they're charging 1,300rmb, anything higher than that is doomed to fail.

I believe that hot desks will eventually become free or at least very, very cheap. Because it's a service that people are not going to be able to justify paying high prices for.

Sandbox 3Sandbox 3

CH: So where do you see co-working spaces changing in the next two or three years?

MH: I think competition is going to be super fierce. You're going to see foreign operators like WeWork and naked Hub versus the local companies. Thus brings us back to last year, the story between Uber and Didi, when you see big international companies thinking they can make it to China, competing very strongly with local competitors and losing out.  Chinese operators have real estate, they own the buildings, and they have the necessary relationships with the government. They will kill you. In the long run. 

CH: But one of the advantages of these international companies have is their global membership...

That sounds great, but the reality is not many people are using it. I traveled a lot in Asia, but I'm so busy going from meetings to my hotel I don't have time to go to a co-working space. So that doesn't really work. 

 

CH: Let's wrap it up a little and look at your guide again? By what critieria did you evaluate spaces?

MH: We've looked at more than 20 spaces and I'm still seeing more. The main focus of this guide is the hot desk. Because it's very easy to compare desk with desk, instead of the actual office environments. When we evaluate the desk, we used about 35 different KPIs which are very different from the KPIs the operators are using. So there are more KPIs for entrepreneurs. For example like the location, the noise aspect, the quality of the chairs -- because in a lot of spaces, even with larger operators, they are using terrible, cheap sofas, or coffee tables and desks as working desks. And they are charging a high price for people to use these cheap desks.

For those co-working operators who have multiple locations, we pick what we thought was the best location. And we found out that many of these free co-working space, their chairs, and desk quality are somehow as good, or sometimes higher quality than the established chains. Which is crazy when you think about it.

CH: We've mentioned before, that if you have a team larger than 10 people, you might need to reconsider utilizing a co-working space.  What about individual freelancers?

MH: My view is that you don't need to pay anything today to work in a co-working space. Take advantage of the free hot desk. Sandbox now has four locations in Shanghai. If you add other operators you probably have 15 - 20 locations of free hot desk in Shanghai.

CH: For freelancers, what's so special about a hot desk in a co-working space, compare to a table at Starbucks, or at home?

MH: You're right, and I think the big question is, what we were talking about earlier. What is the next phase of co-working spaces into improving the service? Because the community is not there, and it's still expensive, so why would people even need a co-working space?

Another trend is that restaurants are turning into co-working spaces themselves. There is an American company that recently raised a lot of money and is expanding super fast called Spacious.  They basically use existing restaurants, coffee shops, and bars, which are very quiet during the day, and turn them into co-working spaces. They are, basically, creating many smaller communities in each of these restaurants. And some of them are five-star hotel restaurants. These are very good environments in which to work. Some of them even come with a concierge. So the next big question really is: Are dedicated co-working space even a long-term solution? As people are becoming more and more mobile and more and more virtual, you can basically work from anywhere. And your team doesn't need to work with you all the time.

I think towards the end of this year, probably, things will be very interesting, whether we're are going to see whether spaces are getting filled by new tenants or not. And if they don't then it basically just shows that the market isn't as big as everybody thinks it is. 

SOHO 3Q Bund 3Q-I 

CH: But the smarter operators are doing events, right? Like X-Space, who would rent out the entire venue for an event.

MH: This is potentially good money for them. And it's because they see the membership illusion -- there's no money to be made with hot desk. But if I am an event organizer, I can get that space for free anywhere, why should I pay for it? I can go to the next newly opened space, that needs traffic and awareness and make a deal.

CH: Do you have any plan to expand your guide?

MH: We are looking at two different things. First, we're expanding the guide to analyze and compare all the aspects of co-working operators. We might also do a guide on small-team offices, or on fixed desks because that's another segment as well. And we are certainly considering doing a guide for other cities. We might do Shenzhen, HongKong, and Beijing.

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