Coworking Space: Exploring the evolving trend of service apartment and office buildings based on observations of hotel operations

As a service-oriented office space, coworking and hotels have been inextricably linked since the beginning of their emergence. After a long period of development, hotels have developed their own branding, with the ability to provide customers with more unique, diversified and high-end services in addition to room stays, forming a mature business model. For the coworking industry which is still in the process of developing its own brandings, we can get a lot of inspiration and learning points from the hotel industry. 

Recently, based on the observation of the hotel industry combined with years of thinking and reflection on the coworking model, Ucommune leaders from the China and the region beyond have gathered and engaged in in-depth discussions on the following three questions:

  1. Why do hotel operations become a separate industry rather than belonging to the developers or building owners?
  2. Why will the original office buildings be replaced by the service apartments, and why does the service apartment need a professional operating company?
  3. What are the factors for the fundamental changes observed in the usage patterns of office buildings?

Interested to find out how our Ucommune management feel about these questions? We will first begin with our Ucommune leaders from the Beijing region.

Beijing

In the first episode of the panel discussion, we are honoured to hear the opinions of our leaders of the Western and East districts of Beijing, Ms Sun Wei and Ms Yang Qian.

Let us first hear from the manager of the Western District of Beijing, Ms Sun Wei.

“People’s demand for quality hotel consumption is getting higher and higher, and hence hotel management and the improvement of customer satisfaction rate are becoming more standardized and refined. Developers or building owners are often more focused on the construction and development of the building itself. If they set up a separate hotel service system, the cost of investment is relatively large.

At present, everyone pays more attention to user experience for development and consumption, and receiving good services is a necessary element for social development and people’s life. A good service must be continuously experimented with, invested, reformed, upgraded and experienced by a professional team. This is a process requiring cyclic development and regular review, instead of permanent operation in a fixed mode. Therefore, service upgrading must be updated and iterated.

With the change of people’s lifestyle and enterprise growth in various industries, demand for office service will be increasingly wide and the traditional office building can no longer meet the demand of enterprises. On top of the need for hardware, we will need more software and more personalised services alongside them. All in all, the traditional office buildings are unable to meet the demand of future generations and developments. “

Ms Yang Qian, the manager of the East District of Beijing, also gave her view regarding these issues discussed.

“The hotel operation is a large system, and it has gradually formed its own operating model as time passes. Although different kinds of hotels have their own unique style, the basic operating system is stable and geared to the needs of each customer, department and process with complex lateral and longitudinal standards of operations.  It is impossible to gain a deep understanding of the entire operation model by only visiting the hotels. This includes the system, operation system, service, brand, channel, which is stable and partially monopolized. If developers or building owners want to operate by themselves, it will incur huge costs and require a long period of time to form teams, develop channels, conduct research and develop systems, or make purchases.

The traditional office has a very direct relationship with customers and for their channels. Under the influence of the current market environment and user habits that value service and experience, office spaces have evolved to a new model. Service apartments now require a professional operation team, which is similar to the operation of the hotel industry. Together with service, it is people+system+model. The services that a professional brand is not a single, but a multi-dimensional one. Without rich operating experience and long-term elimination of barriers of entry, it will be unlikely to operate with high quality.

The current office industry has yet to achieve a fundamental change in its model but is still undergoing partial transformation. The change in this part of the market is due to the change in young people and their habits, as well as the change in customers’ concept of service awareness and the preference to save time and cost. The fundamental change of the office building needs time. Not only is it because of the change of the people’s office models, but also because of the change in a traditional mindset and the expectation of the standard of services.”

The North Region

Following the interview with the leaders of Beijing, let’s now hear from our north region. Specifically, we have Ms Huang Shu Yi from the North region and Ms Jin Miao from the Northwest Region, who will be discussing three questions:

  1. Why does hotel operations become a separate industry rather than belonging to the developers or building owners?
  2. Why will the original office buildings be replaced by the service apartments, and why does the service apartment need a professional operating company?
  3. What are the factors for the fundamental changes observed in the usage patterns of office buildings?

Here is what Ms Huang Shu Yi feels.

Ms Huang Shu Yi

“The hotel industry’s major demands are relatively concentrated, and the service scope is very extensive, hence the expectation of hotels in the area of operational scenario, hard power of empathy and standardized soft power are high. On the other hand, it is not cost effective for developers or building owners to focus on a single entity.

North Region Hotel's Coworking Space

Service apartments are also developing both hardware and software, which is the reason for professional brands to come into the picture as it is not easy for developers to operate these areas independently. In addition, the traditional office building is classified into different grades, and it is the aspiration of enterprises and individuals to enter a 5A office building. However, service apartments are able to upgrade an enterprise and the services it enjoys to be even higher than 5A grade without needing to change the infrastructure itself. Hence, a dream can be fulfilled or at least become  one step closer. Only decorating the building without provisioning the relevant services will not make you a service apartment.

North Region's Cowoking Space Service Apartment

The economic downturn, high office vacancy rate, and the market demand standards are constantly improving, prompting the office to transform and evolve in order to survive.”

In today’s episode, we also have the privilege to hear from Ms Jin Miao, the manager of Northwest Region

Ms Jin Miao, the manager of Northwest Region

“The hospitality industry is built on demand. From the ancient road stations to the inns, to the hotels, and then to today’s star rating system for hotels, it varies with different customer positionings. The demand has also evolved from the simple accommodation and F&B, to the services we have now which cater to today’s professional requirements with higher standards. Each era has its different attributes and significance. Hotel management also needs to have the ability to operate assets; Traditional developers have different expectations for the rate of return and development direction of the project, and targeted investment does not belong to the same route.

The ecology of the market is also evolving. With the expansion of the consumer market after the eighties, nineties and two thousand generations, there is also increasing demand for environment protection from Generation Z. With the rapid change of new business forms, the service capacity of the traditional property and office building is not enough to meet the changing needs. At the same time, the relationship between supply and demand of owners and industrial investment has evolved, and the change of developers from sales to self-owned operations is the accelerant of the industry. “

The South region, ShenZhen and Hongkong

Hi everyone! We are back with the third episode of Ucommune Panel Discussion, where leaders of Ucommune engage in discussions regarding the following questions: 

  1. Why does hotel operations become a separate industry rather than belonging to the developers or building owners?
  2. Why will the original office buildings be replaced by the service apartments, and why does the service apartment need a professional operating company?
  3. What are the factors for the fundamental changes observed in the usage patterns of office buildings?

For today’s episode, we will be hearing from Mr Chen Chen, manager of the South region, Mr Zhao Yi Qiang, manager of Shenzhen region and finally Mr Huang Ruo Bin of the Hong Kong region. 

To start off, let’s hear the opinion of Mr Chen Chen.

“As a toC industry, it can be observed from the customer’s point of view that individual customers are more sensitive to the brand and quality and standard of the brand. Moreover, it is relatively easier to standardise the demand of an individual customer, which leads to the tendency for the supply side to segment and categorise market demand, developing professional teams to handle the operation of hotel brands. At the same time, personal consumption demand is stable (with the core being bed + meal). With the development of the industry, the economies of scale and branding increases the stability of the brand and brings higher industry concentration. If the developers decide to operate by themselves, the challenge is far too big.

There are two underlying trends behind the replacement of traditional offices by service apartments. One is demand convergence, and the other is the smaller organizational size. Demand convergence means that due to digitalisation of office operations, different jobs tend to have the same type of demand for office spaces. Twenty years ago, a civil engineer’s office environment was completely different from that of an accountant’s, but now you can only tell their desks apart by looking at the software on their screen. This trend makes it possible to use standardised products to serve a larger group of offices. The second trend of smaller organizational sizes make it uneconomical for small organizations to provide a range of executive services, especially when job hunting requires talking directly to the boss. These two trends demonstrated the possibility for office services to be outsourced, and the reason for it to be done by professional operating companies rather than developers and building owners is mainly due to the toB attributes of the service industry. This has led to customers having high price elasticity. Hence, a lack of experienced and detailed operations make it difficult to gain an advantage in market competition.

Office service is a service that provides space, facilities and service to increase people’s ability to organise and cooperate, improving production efficiency. Different types of  collaboration will be accompanied by different kinds of office services. In the era of machine production, assembly lines emerged, and as repetitive work is replaced by machines, collaboration will rely more on communication and interaction, leading to the need for more shared communication space. These fundamental changes in the use of offices will require further enhancement of the degree of office intelligence. “

Following Mr Chen Chen, we also have with us Mr Zhao Yi Qiang from the Shenzhen district.

“In the service chain of the hotel industry, the building and location of the hotel itself are provided by developers and building owners. But other than that, the other nodes, such as the hotel brand, customer acquisition channels, hotel service team, hotel operation standards, hotel supplies supply chain, etc, are provided by the hotel operation team. At present, developers and building owners who want to participate in the operation of the hotel will incur huge learning costs. Small ones, such as homestay rooms, are only a segment of the hotel industry that does not necessarily need hotel brands, but they still need to use Airbnb and other Internet platforms for promotion and brand building.

Several factors led to the service apartments replacing the traditional office building models. Firstly, with the development of the economy and the emergence of smaller teams, the demand for smaller offices needs to be met by serviced offices. The management needs of the post-90s, post-00s white-collar workers, and the younger generation are also becoming more complex. In addition, to replace one product with another, the new product needs to be more efficient. Service apartments can be settled at any time and can allow more flexible working styles, improving the efficiency of the team significantly. Administrative communication, site entry, after-care services are all embodiments of efficiency improvement. 

The change in the use of office buildings is caused by technological innovation, enterprise form, and new user groups. “

Last but not the least, Mr Huang Ruo Bin from the Hong Kong region will be sharing his views with us.

Mr Huang Ruo Bin from the Hong Kong region

“The strengths of developers and owners are capital operation and investment and financing, and the business form mainly belongs to the category of financial real estate. Hotel operations being brand operators, hotel services, catering industry wholesale and retail firms, bring with them soft powers such as quality services and chain brand effect (such as when international hotel brands settle in mainland cities). The hotel operation side and the developer/building owner side need to each mobilize the resources they are best at to complement each other, to achieve cost minimisation and profit maximisation. 

If the traditional office buildings are not owned and managed by a large developer group, they may have certain limitations in terms of attracting investment and marketing. On the other hand, service apartments can flexibly allocate and dispose of the excessive stock and excess floors. With the rapid development, change, and impact of the market economy, professional office building operating companies can adopt more flexible leasing and management methods for corporate customers who have demand for commercial buildings, and better develop suitable service and product types to achieve a win-win situation with corporate tenants. 

In addition to the external changes mentioned above, another factor that promotes change in the fundamental use of office buildings is the incentive of the industry itself to reduce loss, improve, and revolutionise. Combined with market changes and the intensifying micro and macro conditions of competition, businessmen from all walks of life will further consult and explore coworking options. They will turn their offices from traditional office buildings to service more flexible apartments which place more emphasis on operational management and provide services on par with the level of hotel services.”

The Central and Southwest Region

Welcome to the fourth episode of our panel discussion, let’s now hear from our Ucommune leaders of the central region. Specifically, we have Ms Li Yan from the Central region and Ms Nan Meng from the Southwest Region, who will be discussing the following three questions:

  1. Why does hotel operations become a separate industry rather than belonging to the developers or building owners?
  2. Why will the original office buildings be replaced by the service apartments, and why does the service apartment need a professional operating company?
  3. What are the factors for the fundamental changes observed in the usage patterns of office buildings?

Here is what Ms Li Yan feels. 

“The hotel industry is already very mature. Its brand, scale and service level have formed a certain barrier to entry for new entrants. Thus, a professional operating company becomes a shortcut to reduce entry costs and quickly gain competitiveness.

The office building is a kind of commodity. Any commodity has its life cycle and will eventually be replaced by new commodities with improved functions, higher cost performance and lower acquisition cost. Compared with traditional office buildings, serving apartments have obvious advantages in multi-function (physical space combined with service platform), higher cost performance (significantly reducing office costs), and lower barriers to entry (quick signing and no investment required from enterprises). Professional service apartment operating companies can provide owners with such advantages more obviously and with stability, hence meeting the needs of owners to transform or explore new business directions.

When a large number of traditional buildings are vacant and unable to bring benefits, but at the same time, a more efficient and profitable operation mode appears, the fundamental use pattern of office buildings is bound to change. “

Moving on, we are also honoured to have Ms Nan Meng from the Southwest Region. Here are her views.

“After 100 years of development and maturity, the hotel industry has become a space mainly aimed at C-end users. Industry development so far saw supply exceeding demand, leading to fierce market competition. However, the overall development of the hotel industry is relatively slow in terms of reservation technology (overly dependent on external platforms for reservation), product design, service design, intelligence, and internalisation. Therefore, the major competitive trends in the industry naturally lead to profit transfer, capital scale, project coverage number, etc. Relatively speaking, there are scale advantages and brand advantages for hotels, which brings more advantages amidst the current competition. These are very difficult for developers and building owners to achieve.

Traditional office buildings are gradually being replaced by service apartments, and the trend is becoming increasingly obvious. There are a few main reasons. Firstly, the optimisation of enterprise organisational structure. To survive and develop, enterprises invest more resources and funds in business development departments. More and more enterprises reduce their pure administrative cost, which also helps them focus more on their industries and business segments. Secondly, the efficiency of capital use is improved. More enterprises are no longer satisfied with choosing a blank office space waiting for decoration as they do not want to invest in this part, and choose the service apartments so that the corporate cash flow is more efficient. Thirdly, the availability of information. Compared with the traditional office space, the information provided to the enterprise by the service office space is far greater than that of the traditional office space. Although this is not an explicit factor, I believe that in the future, a space that can provide valuable information to enterprises will be extremely competitive in the market. Fourthly, the customer life cycle. Traditional office products and corresponding furniture decoration styles belong to the generation of enterprise customers who are entering the next stage of the life cycle. The core consumer group is now being replaced by business owners who are born after the 80s or 90s, and their aesthetic preferences, social interaction habits, and even some of the outlooks on life are different from their parents. This has resulted in a marked shift in their considerations when making purchase decisions of office space.

With increasing monopoly and long-tail business models in various industries,  long-tail enterprises face more severe market competition. This has led to the shift in the organisational structure of enterprises and eventually leading to the change of future office forms. “

Shanghai and the East Region

Hi everyone! We are back with the fifth episode of Ucommune Panel Discussion, where leaders of Ucommune engage in engaging discussions surrounding the following three questions:

  1. Why does hotel operations become a separate industry rather than belonging to the developers or building owners?
  2. Why will the original office buildings be replaced by the service apartments, and why does the service apartment need a professional operating company?
  3. What are the factors for the fundamental changes observed in the usage patterns of office buildings?

For today’s episode, we will be hearing from Mr Guo Han, manager of the Shanghai region, and Ms Ji Shan, the manager of East China.

Let’s first hear from Mr Guo Han.

Mr Guo Han, manager of the Shanghai region

“Hotels are a labour-intensive industry that underwent a hundred years of development. As the first five-star hotel enters China, with China’s demographic dividend and developers using the space (store/office building or apartment+hotel mode) to receive government funding, the brand advantage is used to manage output and to cooperate with the developers. However, with the increasingly fierce competition in the industry, the importance of brand advantage, scale and service in the market has become more prominent. With the development of B&B and instant hotels, as well as the extension of the investment return cycle of hotels, there are few developers who invest or operate hotels directly now.

The development in our era promotes the innovation of the industry, changes according to the evolving consumer demand o, and reduces the cost to customers, which are the reasons why service apartments can replace the traditional office.

The building economy is the inevitable outcome of modern services. When the environment, the relationship between supply and demand, the consciousness and the consumption habits change, it will definitely prompt the use pattern to change as well. “

In today’s episode, we also have Ms Ji Shan, the manager of the East China region with us.

Ms Ji Shan, the manager of the East China region

“Factors such as strong member support, standardised service and management, professional research and positioning, mature design and engineering management and collection system are what make hotel operation an independent industry.

The traditional office buildings will be slowly replaced by service apartments. Professional operating companies with rich operation and management experience and corporate services can enhance the ability to increase rent and promote office consumption. Social development promotes more personalised and diverse demands which are becoming more and more refined. Customers are more sensitive to office, manpower and other related expenditures. With younger generations coming to the office, more attention is also paid to space experience in offices. “

Singapore

Last but not least, we have Ms Liu Enxi, the general manager of Singapore with us today. Here is what Enxi feels about the three questions of the panel discussion:

  1. Why does hotel operations become a separate industry rather than belonging to the developers or building owners?
  2. Why will the original office buildings be replaced by the service apartments, and why does the service apartment need a professional operating company?
  3. What are the factors for the fundamental changes observed in the usage patterns of office buildings?

“From the perspective of social cost and professionalism of human resources, the finer the division of labor, the more developed the society will be. This is an inevitable trend of economic development. From the perspective of the economies of scale for an industry, if the scale of the hotel cannot reach a certain size, it will not be cost effective to cultivate a professional operation team. This is one of the reasons why Ucommune always chooses the same city or culture to develop large-scale businesses. In the same regional market, the operation cost will be lower as the scale increases due to the similar language, belief and system.

In Asia, the traditional office space will not be completely replaced by the service apartments, but service apartments will be more and more accepted due to its flexibility, cost effectiveness and so on. Similarly, once the serviced apartment has reached a certain scale, it will also have its own professional operation company, like here. But for most brands that are not yet established, finding a professional operator is the cheapest way to do it.

With the outbreak and development of the pandemic in Singapore, I have made the following observations regarding the transformation of office buildings: 

1) Working from home entirely is not feasible in the Asian culture. For example, we have received some inquiries from Singapore employees who choose to work together at their own expense. This is because despite being required to work from home permanently, the Chinese culture believes that without an office environment, it is not a job anymore. In addition, Chinese bosses also need to see their employees’ working conditions constantly and do not want their employees to work from home. As a result, more people are turning to coworking.

2) For western culture, what we realised is that they really value the weak connection between people. We met a lot of companies, especially westerners, who started coming to the community in groups daily right after the Singapore government announced only 25 percent of their workforce would be allowed to return to the workplace. This shows how deeply they value the community. Today’s technology has been able to achieve more than 90% of the virtual workplace, changing the traditional model of group offices. But what we discovered is that this decentralized model does not work no matter what culture. Hence, after the epidemic, we have freshly emerged demands for 8 person office spaces for 15 people, and 20 person office spaces for 35 people and so on. In other words, technology can be decentralized, but people still need a space to generate the weak connections. As a result, our community will experience a transformation to become a model of “more members, less workspace”. “

This is all for our panel discussion. Thank you for tuning in! In conclusion, for the hotel and office industries, the direction of segmentation and focus on operational capabilities is the same. With the deepening of the market and users’ cognition of service value, service apartments will continue to develop in the two directions of basic operation and enterprise services.

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Ucommune is China’s leading agile office space manager and provider. Founded in 2015, Ucommune has created a large-scale intelligent agile office ecosystem covering economically vibrant regions throughout China to empower its members with flexible and cost-efficient office space solutions. As of December 31, 2020, Ucommune has committed to 234 office spaces in 54 cities, including all tier-1 and new tier-1 cities in Greater China, as well as Singapore and New York City.  This has allowed us to develop an extensive global network, providing approximately 647,700 square meters of managed area to 1,044,700 members. In November 2020, our company listed on the Nasdaq, becoming the first listed Chinese coworking space company in the market.