Gaw Capital on how real estate’s sharing economy drives sustainability

The emerging real estate sectors of co-working and co-living are among the hottest in the market and Hong Kong-based Gaw Capital Partners has invested in two operators in the Asia-Pacific region. It was an early investor in high-end co-working brand naked Hub and invested in Chinese co-living operator Harbour Apartments last year. Humbert Pang, managing principal and head of China at Gaw Capital Partners, talks about how these new sectors meet stakeholder demand for environmental and social sustainability.

PERE: What is driving the demand for co-living and co-working spaces in Asia-Pacific and China in particular?

Humbert Pang: Over the past 30 years or so, technology means we have progressed from an office space that needs to accommodate a large computer, filing cabinets, a fixed-line telephone and a fax machine to a situation where you can do everything with a laptop and a mobile phone. These developments mean people are fundamentally rethinking what they need from office space. At the same time, another historic major space in the office was the meeting room, but this was probably the most underutilized space in the building, maybe only full twice a year. But you still need to mingle, to interact, so you need shared space. A co-working space means you can get a hot desk, a meeting room when you need it and a social space to meet colleagues and other people.

At the same time, co-working could offer cost-saving advantages as compared to traditional office spaces, since fit-out is no longer required. This is especially attractive to SMEs and start-ups that are cost sensitive. For some location-sensitive large corporates, this cost-saving advantage of co-working could allow them to allocate more staff to prime CBD locations, where the costs of renting a traditional office could be very high. Furthermore, as more people work freelance, they are demanding shared space, because working from home is often impractical and sometimes lonely.

There is a huge demand for co-living spaces in China’s major cities. There are 7.9 million graduates each year heading to big cities to find work. They can’t afford to buy and they might also find the big city lonely and intimidating. Harbour Apartments offer solid mid- to high-end accommodation at a reasonable price. Tenants have less personal space but shared TV rooms, kitchens and other common areas, so it’s an extension of their university dorms and the opportunity to be part of a community. And with both naked Hub and Harbour Apartments, the more they grow, the larger and stronger the community is. A key to their attraction for tenants is that these are people-centered businesses; it is not just the provision of space.

PERE: How are co-living and co-working facilities more environmentally sustainable than ‘conventional’ office and residential space?

HP: The key is that co-working and co-living support the sharing of space, supplies and resources. Technology breeds efficiency and that cuts down on some basic wastefulness. For example, consider the fit-out work that would have to be undertaken by small, growing companies if they used traditional office space; they could be moving or remodeling repeatedly as they grow. Co-working space is centrally fitted out and designed to accommodate expansion, so that is already a big saving. In a normal office, there is a lot of wasted energy in meeting rooms as they are often empty and yet often still have the aircon running.

Co-living is the same because there is less waste from construction and renovation and most importantly, lower energy use from shared facilities. Think of the reduction in energy costs if you have 20 people watching the football in a TV room rather than on 20 separate televisions in their own apartments. Co-living and co-working space is also flexible and so gets worked harder; for example shared spaces can be used for events after the working day is over.

Co-working and co-living also lend themselves well to conversions of older space. In China’s larger cities we see buildings that are well located but very out of date, such as one-star hotels, which can be converted and revitalized. The simple act of converting space rather than demolishing and rebuilding is greener and also brings more life to a district. Another Gaw project, the refurbishment of Pacific Century Place in Beijing, turned an older department store into a stylish office location, with naked Hub as a tenant, and brought in new F&B outlets, which have a customer base already from the co-working members.

PERE: As real estate investors take a more nuanced approach to ESG matters, social sustainability and community are focused on like never before; this must be a strong point for co-living and co-working?

HP: In traditional office and housing spaces, people often do not know who their neighbors are, but co-living and co-working promotes community by offering platforms for people to come together and interact with each other face-to-face. In co-working spaces, the people sitting next to you change every day and in both co-working spaces and co-living apartments, the operator will organise social activities on regular basis. A report from Emergent Research last year found that 87 percent of co-working facility members report they meet other members for social reasons, with 54 percent saying they socialize with other members after work or at weekends. Plus, 79 percent said co-working has expanded their social networks and 89 percent say they are happier.

PERE: Another rapidly developing aspect to ESG considerations is health and wellness, how does co-working and co-living meet these aspirations?

HP: Wellness is a major focus for naked Hub; its co-wellness concept allows members to book activities through its mobile app for meditation, yoga, personal training, spinning, Pilates and even massage sessions. Shared spaces in the facilities run pre-work yoga sessions. So more people are actually getting into healthy habits because of the ease of going to the gym or the ease of doing those yoga classes as well. There is also a partnership with Mobike, which reduces the cost of bicycle hire and therefore encourages people to take a more healthy transport option. Also, the community benefits of co-working and co-living are also health benefits; if people are less isolated, are happier and more outgoing then they are also healthier.

PERE: For Gaw Capital and its investors, sustainability has to pay its way, how do the sustainable aspects of these investments boost returns?

HP: A lot of the efficiency factors we’ve talked about benefit the bottom line: operators can take longer leases, there is less ongoing refurbishment work, less major capex and potentially extending building life, all of which will boost returns. Furthermore, the added value services that operators offer – such as social events, talks, classes and other events – are also additional revenue streams. Our communities are growing groups of consumers of interest to brands; operators can use big data to exploit this to the benefit of both tenants and profits.

Space sharing in Asia
Gaw Capital has got ahead of the pack in investing in a growing trend

Gaw Capital invested in naked Hub in 2016 to help the co-working company boost its presence in China and the rest of Asia. Founded by husband and wife team Grant and Delphne Horsfield in 2015, the company now has 46 locations in 10 cities across four countries in Asia. Earlier this year, WeWork – the world’s largest co-working operator – announced that it was to buy naked Hub for a reported $400 million.

Harbour Apartments was also founded in 2015 by entreprenuer Huang Haibin, who rapidly expanded into seven Chinese cities: the first-tier cities of Shanghai, Beijing, Shenzhen, and Guangzhou, as well as East China’s Hangzhou and Nanjing, along with Hong Kong. The platform aims to open and operate 80,000 units by 2019. Gaw invested in the operator earlier this year. The company’s strategy builds on the Chinese government’s desire to build a rental housing market in China, in order to provide good accommodation for young workers in major cities and to reduce speculation in the housing market.

This article was sponsored by Gaw Capital. It appeared in the Sustainable Investing special supplement that accompanied the October issue of PERE magazine.