SOHO China Poised to Enter Smaller Cities With Shared Office Projects

(Beijing) — Prime office real-estate conglomerate SOHO China said it will expand its office-leasing business into smaller cities by tapping existing properties in those cities and repackaging them for further leasing to small and medium-sized companies.

Pan Shiyi, chairman of SOHO China, announced the new strategy of his company during a press conference on Friday. He said that the office-leasing business will be marketed under SOHO 3Q, a community-focused shared office space sub-brand launched by SOHO China in 2015, in order to “make the most of existing properties.”

“There is too much waste in our ways of using the properties now. To use a property is more important than holding a property. And sharing is always a better way for the using," Pan said.

In the next two months, the company is looking forward to a new round of fundraising for SOHO 3Q projects, for which the chairman sees an opportunity to further spread into second-tier cities and smaller cities on the better-than-expected developments of other shared office space companies in those cities.

Big cities have been the key focus of SOHO 3Q since its launch in 2015 due to a better business environment attracting many Chinese startups as well international firms. According to SOHO China’s annual report of 2016, by the end of last year, there were 17 SOHO 3Q projects in Beijing and Shanghai, and the average rental rate of SOHO 3Q projects reached 85%.

Regarding how to select cities, Pan said GDP is the yardstick for consideration. More specifically, the company will go with the cities where local GDP and real GDP per capital, often seen as an indicator of a place’s living standard, are both at relatively high levels and the share of the service sector accounts for a larger part in local GDP.

In June, SOHO China agreed to sell its Hongkou SOHO Project en-bloc for 3.57 billion yuan to Keppel Land China, a subsidiary of Singapore real-estate company Keppel Land and Alpha Investment Partners Ltd., the asset management arm of Keppel Corp. Ltd.

Hongkou SOHO Project is a commercial building situated at Wu Song Road and Zha Pu Road at Hongkou District in Shanghai, with a total gross floor area of approximately 90,512.2 square meters, including office and retail leasable spaces of approximately 70,042 square meters, according to the statement released by the company.

Pan said whether to sell a property hinges on the rental return rate, and that the company will never sell two well-located SOHO projects in Beijing and Shanghai, which generate considerable rental fees.

Pan said the business model of shared-office space has matured and will be a key driver for the company’s profits in the next stage.

Contact reporter Pan Che (chepan@caixin.com)