IWG Booming co-working market in Vietnam draws foreign operators

The co-working market is strengthening in Vietnam and global market leader WeWork is set to launch its own sites in the country. Savills Vietnam said 43 co-working spaces opened in Hanoi and 15 in Ho Chi Minh City in the past four years. Operators included local firms Toong, Up and Hatch, and international companies Regus, Hive, CEO Suite and Kloud. WeWork bought Chinese competitor Naked Hub in April, which is planning to open five locations in Vietnam this year. Co-working makes up 3% of office rental in Vietnam and is expected to be as much as 15% within five years.

US giant WeWork is making an entry into the Vietnamese co-working market, Photo: Le Toan

The world’s largest co-working space operator WeWork, valued at $20 billion, will likely make competition in the local market grow fiercer if it decides to launch its own co-working spaces in Vietnam.

According to the latest report by real estate services provider Savills Vietnam, 43 co-working spaces have been opened in Hanoi and 15 in Ho Chi Minh City since early 2014. The growing market includes local names like Toong, Up, and Hatch as well as foreign operators like Regus (UK), Hive (Hong Kong), CEO Suite (South Korea), and Kloud (Singapore).

To serve millennial professionals, most co-working spaces are concentrated in the city centre, namely the four inner districts of Hanoi and the central districts 1, 2, 3, and 4 plus Binh Thanh and Phu Nhuan districts in Ho Chi Minh City, all of which boast a high density of firms, commercial space, and entertainment areas.

Will WeWork devour the market?

Prior to eyeing Vietnam, WeWork expanded in Asia through mergers and acquisitions (M&A) deals. Last year, the US firm acquired a Singapore-based counterpart Spacemob, which followed a very similar model to WeWork’s, without disclosing the terms of the deal. With Spacemob, WeWork was able to enter Singapore, widely seen as Asia’s most innovative country, as well as Indonesia, Southeast Asia’s most populous country.

In April the giant announced a $400 million deal to buy Naked Hub, one of its main competitors in China, to enter the most populous market in the world.

Naked Hub is an offshoot of China-based luxury resort company Naked Group that was started in 2015 by Grant Horsfield and Delphine Yip-Horsfield. The company is primarily anchored in China, with most of its locations in Beijing and Shanghai, but it has expanded into Australia, Hong Kong and Vietnam. All told, it claims to have 10,000 members across its 24 office locations.

According to the company’s website, five Naked Hub locations are slated to be opened in Ho Chi Minh City and Hanoi in 2018. As of now, Naked Hub in E-Town in Ho Chi Minh City and Naked Hub in Indochina Plaza in Hanoi are among the most crowded locations in the community.

A WeWork insider declined to tell VIR about the giant’s detailed plans for Vietnam, but did say that the company would not go the way of M&A in the country.

Exciting market that creates no fear Do Hoai Nam, co-founder of domestic operator Up, told VIR that ASEAN-based Grab acquiring global giant Uber’s operations in the regional market shows the key role the “local element” can play.

Up tends to attract relatively new startup companies, so it chooses locations that are home to young startups. Up has co-operated with Ho Chi Minh City University of Technology to create a common working space and nursery business startup with legal support services and personnel.

Bui Trung Kien, deputy director of Commercial Leasing of Savills Hanoi, said that every co-working space is different in its business model and its target customers. He explained there are units geared towards young entrepreneurs, startups, and freelancers, while some are aimed at small- and medium-sized enterprises (SMEs) or foreign corporations looking to rent office space in Vietnam, adding that the co-working market in Vietnam is competitive and developing in a healthy way.

According to Kien, the entry of a giant like WeWork would certainly have an impact on the co-working market in Vietnam. However, he added each that firm has its own competitive advantages and the presence of international firms would make the market more dynamic and professional.

Taking a lesson from the giant, local co-working spaces, which mostly serve startups and freelancers, could make their business models more flexible and attract potential corporate clients.

Nguyen Hoai An, director of Consultancy Services at CBRE Vietnam, told VIR that as millennials account for 91 per cent of clients in local co-working spaces, much higher than the global average of 67 per cent, more firms are bound to join the market to meet the demand.

Local operators welcome diversity

To date, well-known local operator Toong, founded in 2015, is the only domestic operator to receive strategic investment from foreign investors–Openasia Group and Indochina Capital–and form strategic partnerships with other companies such as CapitaLand, United Overseas Bank, International Enterprise Singapore, and Vanguard Hotels.

Speaking on the possibility of the US giant coming to Vietnam, a Toong representative said the company was “happy to welcome foreign operators”, adding that the market is big enough for many more players.

Toong, which is not only developing more spaces in Vietnam, but is also expanding to Cambodia and Laos this year, said that, “The more operators in the market, the more choices customers have.“

Toong’s representative asserted the company’s belief that successful firms are the ones which hold a clear vision and work hard to offer great value to their target customers. He also told VIR that the company believes its target customers are different from WeWork’s.

As the latest comer to the market last month, CoGo co-working space is positioning itself as a world-class investment unit, with an average of 2,500 square metres to each of its locations, which are focused on Grade A and B office buildings. Most of the SMEs it calls clients operate in a stable manner, so the style of office design is more professional rather than reminiscent of a cafe.

Kien of Savills Hanoi said that thanks to the scale advantage, rent will be one of the strengths of CoGo, since its prices range 20-30 per cent below the average. Kien also expects that the participation of more and more companies will get more businesses to move away from traditional offices and use co-working spaces.

Kien added that the co-working market in Vietnam accounts for about 3 per cent of the total office rental market, which is still lower than the ratio of 5 per cent seen in other regional markets. It is expected to reach 10-15 per cent over the next five years.