There are few burgeoning global industries hotter than co-working. The concept is simple, and the trend has gained traction in part because it’s associated with startups and gigging, two elements of the global economy widely associated with striking it rich.
Basically, co-working involves freelancers and fledgling and established companies renting shared office space on terms that are more flexible than those offered under traditional commercial real estate models. Co-working providers typically trumpet the collaborative, creative nature of their office environments, often fostered by beer kegs and bean bags and in some cases by electronic sensors installed to determine if there are underused areas that might be better designed. Some co-working providers even offer their tenants legal services, mentorship programs and/or other benefits such as negotiated insurance rates.
Probably the most well-known industry player is the New York-based WeWork. The company was founded in 2010 and now has locations in 66 cities and 20 countries, with plans to expand further. According to one report, WeWork has a $20 billion global valuation and “now stands as the fourth most valuable US startup after Uber, Airbnb and SpaceX.”
Despite its size and major financial backing, WeWork is just one player in a crowded global field. It’s currently engaged in a legal battle with one of its biggest competitors, the Beijing-based UrWork. UrWork was founded in a basement in 2015 by Mao Daqing, a former VP at the real estate development firm Vanke. According to The Financial Times, it took Mao just two years to transform UrWork from that basement idea into “the first unicorn in China’s co-working sector, claiming to be worth about $1.2 billion.”
Bloomberg reports that WeWork's legal action against UrWork includes suits filed in New York and London. The New York suit accuses UrWork of trademark infringement, the London suit of misrepresenting its services as those of a competitor (known as passing off). WeWork’s “legal salvo,” says Bloomberg, “sets up a clash between two startups racing to open locations around the world, renting desks, conference rooms and other workplace essentials to teams and entrepreneurs in urban centers.”
While Mao declined to talk in detail to the Times about the legal action, his company presumably won’t roll over. It’s backed by Ant Financial (affiliated with Alibaba) and Sequoia Capital. Furthermore, it already has the lion’s share of the China market and, according to its website, has plans to establish 160 locations in 32 cities over the next three years.
The Times says that UrWork “wants to help Chinese companies enter the US, and US companies open in China.” That in itself is a striking sign of the times, another example of China's growing global ambitions. Interestingly, Mao tells the Times that his startup’s success is due in large part to the Chinese government encouraging its citizens to create startups, and to millennials entering the workforce. He also notes a sea change in China’s culture. Just a generation ago, China valued safe, traditional jobs like engineering and eschewed risk-taking. Now, he says, his country is awash in entrepreneurs.
As always in such cases of rapid economic change, existing laws become outmoded. To account for the rise of co-working providers like UrWork, some of China’s legislators are taking action. An article last month in China Briefing reports that Beijing and other Chinese authorities are beginning to codify guidelines to regulate co-working providers and their clients.
The article explains that new startups that typically rent co-working spaces face “myriad … tax issues,” including most prominently which address to use when registering their businesses. According to the article, authorities in “several Beijing districts have refused business registration applications that have co-working spaces listed as their address.”
It’s illegal in China to have a registered address that differs from a working address, and the new laws require businesses to provide a physical address and a valid certificate of property ownership to register. This requirement can put unregistered co-working clients in a precarious position, since they engage not with property owners but with co-working providers, who themselves lease from property owners.
China Briefing notes that some co-working companies operating in Beijing are already responding to the recent changes. Some, for example, are examining the possibility of “using third-party partners to help with business registration, and identifying new locations where business models and services associated with the industry are allowed by authorities.”
The article emphasizes that other legislation will likely be passed in response to the growing popularity of co-working spaces. It may be telling that China Briefing doesn’t provide any other examples beyond the existing problems related to business registration. It’s true that one can easily imagine new laws or changes to existing laws being passed to account for co-working. For example, new laws may be needed to regulate co-working contracts, the tax deductibility of co-working spaces, health and safety responsibilities related to co-working spaces, and the protection of personal data and intellectual property rights in co-working spaces.
It is, however, equally easy to imagine that the rise of co-working spaces will not necessitate a flood of legislative changes around the world. An Independent article on WeWork notes that some believe the company is “a glorified office landlord, a facilities manager with a few technological bells and whistles tacked on, all washed down with some craft beer and prosecco on tap.” Peter Guy makes a similar argument in an editorial for the South China Morning Post, saying that co-working is little more than a traditional real estate offering masquerading as an arm of the tech industry. He writes that “co-working space is now massively over supplied and so simple a concept such that anyone can execute it.”
Guy also points out that confidentiality rules at established companies prevent any kind of true collaboration in shared office spaces, and that “any start-up with a great idea certainly doesn’t want to share it with a room full of strangers; they want to talk to an adviser, investor or technologist.”
There are related concerns about the long-term viability of co-working. Many articles on the subject — and co-working providers themselves — emphasize that co-working spaces are not just for startups and freelancers, but are evolving to attract multinational corporations and small to medium enterprises. Investors in co-working outfits had better hope that related services do in fact have lasting appeal for established companies. After all, even conservative estimates indicate that the majority of startups fail, and any business model that relies on freelancers to pay real estate-related bills over long periods is patently unsound.
Recent estimates indicate that about 30 percent of WeWork’s clients are corporations that occupy relatively large areas of each location. I have a hunch that number will have to rise substantially in order for co-working providers to survive over the long haul. But if co-working spaces become dominated by established corporations, then what’s the point of co-working spaces?
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