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Nine Questions: A Walkthrough to the Future of Ucommune

With the ever-evolving work culture and demands of commercial real estate operators, coworking is becoming the mainstream option. Today, coworking space providers are exploring new and diverse workspace solutions, efficient services, and sustainable profitability.

A few years ago, Ucommune, a Chinese coworking space and service provider, has already begun such initiatives, which has yielded positive returns. On June 29, Ucommune officially signed its 300th project, tallying the coworking operator’s nationwide workstations and workspace area to 100,000 and 580,000 m2  respectively. The asset-light business has also seen its share of growth. The asset-light management projects expanded from economic powerhouse tier-1 cities (including newly recognized ones) to tier-2 and tier-3 cities (potential/ high-growth cities), which are becoming driving forces for various cities’ industrial development.

We’d like to share insights on the strategic development and future plans of Ucommune. Here are nine burning questions you might have about our coworking brand. 

Future of Ucommune: 9 Burning Questions

Q1: The COVID-19 pandemic is a hurdle that has affected everyone in some way or form in 2020. What impact does it have on Ucommune?

Tips: Limited impact, project integration, steady improvement

The impact of the pandemic on SMEs has indeed affected the increase in our occupancy rate to a certain extent. However, if we look at the long-term trend, the cost of co-working will decrease along with the merging impact of the declining office occupancy rates and the lowering housing prices in various regions. The current impact of the pandemic to the demand of workspaces will not be for the long haul though there will be consumer behavioural changes. Clients will even be more price-sensitive and prefer flexible contracts over long term agreements. They will also favor stable and reliable coworking brands as it will help them run their business more efficiently, reduce risks, and boost revenue.

During the pandemic, we also had a company-wide reorganization and projects and plans optimization – More than 50% of the projects applied for and received support from the upstream owners and government, while some were transformed into asset-light cooperative operations or closed down. With a series of rapid and resolute measures, we ensured that the company’s cash flow during the pandemic was robust and stable and as an effect, laid a solid foundation for better company performance.

Here are the business performances of Ucommune in the first four months of 2020:

The light assets to the heavy assets ratio: The light assets to direct-operated projects ratio from January to April 2020 in Ucommune had a year-on-year increase of 26%, with the percentage of increase reaching 106%;

Occupancy rate: The average occupancy rate of Ucommune from January to April 2020 had a year-on-year increase of 7%, with the percentage of increase being 11%;

The number of cities: by April 2020, Ucommune is operating in 46 cities, increased by 5 cities (13%) when compared with the same period in 2019. The current total number of projects managed by Ucommune is 303. 

business model of Ucommune

Q2: What is the business model of Ucommune?

Tips: workspace + business services + investment incubation + e-commerce + REITs

From a structural point of view, our core is still centered on the workspace business. While continuing to extend outwards, we form an ecological chain that complements the upstream and downstream businesses, which strengthens and stabilizes the overall business model. We now have four main focus directions: First, business services aimed at downstream customers, secondly investment incubations for internal and external companies, the third is e-commerce services based on existing platforms, and lastly, derivative REITs.

Q3: Could you elaborate the four directions?

Tips: specific development of business services, investment incubation, e-commerce, and REITs

From the perspective of business services, we are committed to building a platform that integrates internal and external resources. At present, more than 700 service providers have joined “UBazzar”, covering –  human resources, fiscal and tax laws, advertising, design, and IP, etc. These services can help solve the essential needs of enterprises and members in their day to day operations. Companies can share their needs through the platform as well, or directly contact online service providers to figure out tailored-made solutions. These services have a wide number of options for members to choose from all while having discounts and competitive rates compared to the market price. In the future, we will continue to integrate high-quality upstream service providers, expand the service range of our platform, and bring our service capabilities to even niche fields and offerings.

When it comes to investment incubation, we have invested in over 30 internal and external high-potential enterprises – helping them develop and grow effectively in a short period of time. These companies are service providers themselves who then can share their products to our members and tenants, enabling them to grow even more. This cycle creates a great win-win model for both Ucommune and incubated enterprises. We will continue to provide proper support and resources to help these innovative tech companies progress and grow.

As for the e-commerce services, the community online platform experiment that we started last year has gradually been gaining traction and used by our customers. Based on the existing online and offline social networking platforms, we have launched multiple group purchase events, mainly offering below-the-market-price group purchases for food, daily necessities, skincare products, cosmetics, etc. to customers in the companies. In return, we have created a private-traffic e-commerce platform with high customer stickiness and strong bargaining capability. In the next stages of development, we are dedicating in extending the online e-commerce platform to the offline communities, leveraging on the internal traffic assets of the community, thus building a distinguished multi-source profit model.

REIT’s launch is the strategic development direction that we intend to put our energy and focus in the future. While we continue our effort in cultivating asset-light businesses, we will expand to the real estate finance business. Backed by our robust operation capabilities, our expansion will be based on the export of management models that can scale at low costs, effectively reduce owners’ financial risks.

Ucommune's directions

Q4: Is the export of management models you just mentioned one the asset-light businesses that Ucommune has been advocating for?

Tips: Analysis of the asset-light business model

Yes. Our Asset-light business includes the following models: the export of management models for the real estate owners who own certain properties and wish to effectively monetize their inventory; the management operation model are for the real estate owners that have existing properties for renting and need professional management and promotion services; the one-stop tailored U Bespoke model for specific focus-customers; and the fragmented space model for small and micro owners. If we look at the building economy, urban development trends, and the insights into the demands and pain points of asset holders’ developments, we can find that the asset-light model has lower investment, higher revenue efficiency, more flexible site expansion, and can effectively and continuously bring liquid cash flow to brands and partners. In the future, we will also promote this model to more cities across the country. We can provide more workspaces and commercial support for urban innovation and apply our accumulated space operation management experience. This helps create living-room areas for the cities and improve operations efficiency and value for inventory assets.

Q5: How is the asset-light business moving forward?

Tips: Asset-light business data

By the end of 2020, Ucommune is expected to have about 130 asset-light management and with a total management area of more than 300,000 m2 and about 50,000 workstations across 52 cities. The light assets to the heavy assets ratio would be 4 to 6. By 2021, we plan to have about 300 asset-light projects covering 75 cities, with a light assets to heavy assets ratio of five to five.”

Q6: It sounds like a good way to go, so what are the advantages for Ucommune doing asset-light businesses?

Tips: Diversified products + business services + chain operation capabilities + myriad promotion channels + intelligent software and hardware

First, diversified product models: Management export model, managed operation model, U Bespoke model, and fragmented space model – All these products can fully meet the needs of owners in various cases and situations.

Second, an abundant mix and types of services. Services such as space design, construction outsourcing, management consulting, enterprise and service provider systems, investment promotion, SaaS, training, etc., can address various pain points in the operation of the companies. Our services continuously empower enterprises and improve the added value of asset-light products.

Third, professional chain operation capabilities. With years of experience in coworking workspace operations, Ucommune has completed its coworking service layout across various Chinese cities of different tiers, and has developed a mature system of operation processes, investment promotions, and business services;

Fourth, myriad promotional channels. Currently, our channels include online – WeChat official accounts and UBazzar App, offline – cooperation intermediaries, government connections, and internal and external partners. We can promote resources through multiple channels and perspectives to help the investment promotion work in an all-round and efficient manner;

Fifth, advanced smart hardware and software equipment. Ucommune has continuously enhanced its tech – the mobile application, IOT intelligence, 5G, and data mining. Smart hardware and software are applied to space operation management and office services to build a high-quality space and seemless operation platform. We power productivity and operation management with technology, which strengthens the business and adds value to the workspace at lower costs.

Sixth, good brand awareness and integrated ability of design, construction, and operation. Ucommune has an extensive network covering multiple cities and different types of customers. As a result, we gained new opportunities for cooperation that will help our asset-light customers see a foreseeable ROI. We are now one of the few companies in China that boast the three-part service of design, construction, and operation. Our partners can enjoy better project positioning, design, construction, and follow-up operations from us.

Ucommune - Key tier-1 and tier-2 cities

Q7: Ucommune has already deployed projects in the key tier-1 and tier-2 cities. Are there any plans to expand into more cities? Are these cities the right places for the coworking business?

Tips: Focus on the small city/town and rural market + 100-City Partnership in China

The different performances of various cities during the pandemic has made us pay more attention to various small city/town and rural markets. The impact of the pandemic on the tier-3 and tier-4 cities is relatively smaller, and thus the faster recovery. An increasing number of top companies in new industries have been expanding their share in these new high potential markets – tier-3 and tier-4 cities. Zooming out, the Chinese economy will continue to develop in a balanced approach. With the current government policies in place, the concept of “City Tiers” will gradually dilute. Ucommune will go out of the core business areas of tier-1 and tier-2 cities to embrace those potential tier-3 and tier-4 cities and fill the niches in the local markets, providing them with a dedicated team that can handle various operations and management implementations.

We have just launched the 100-City Partnership in China. The list of the first 100 targeted cities was announced on June 4. We have signed with several partners in these cities and contracted new sites in Huizhou and Zaozhuang, etc. Ucommune will work with these partners to expand and explore workspace businesses in more territories of China.

Q8: How can Ucommune settle in these cities without the local resources?

Tips: 100-City Partnership in China

Our partnership initiative enables us to work with partners who provided contracted projects that focus on expanding to more urban workspaces. In addition to project resources, these partners will have an impact in the local and regional commercial real estate industry. They will also share common visions and coworking concepts that will be applied to offices and industrial parks, creating new landscapes of innovation and entrepreneurship for local cities. As we’ve understood, these partners have spaces in city centres and main business areas of newly recognized tier-1 cities, booming tier-2 and 3 cities, and lastly, major tier-4 cities.

The Future of Coworking Space

Q9: What's your vision over the future opportunities in the coworking business?

Tips: The business still has room for growth, which calls for practical business models, sustainable profitability, and core products with real value

We can tell that the coworking business still has huge room for growth and great prospects. Compared with some of the traditional office solutions that look like a “semi-finished house”, coworking is a “fully finished house”, with detailed design and interiors, additional operating services, and covered daily utility fees as its most essential “refinement”.

The pandemic has made many downstream companies in this industry realize the importance of cost control and smart office. Customers will favor the brands that can provide flexible and agile work solutions as it helps them save on cost and time.

We have also noticed that it’s better to get to the higher notches of businesses. There are several models that allow customers to obtain more added value:

The business center model. This type is only for the tier-1 and tier-2 cities. It works through a”middleman” that has a relatively lower threshold and is highly dependent on locations (requires a core region);

The platform service model. Based on the SaaS service platform, it exports software and hardware products to owners. The focus of the model is to improve the standardization and intelligence of building operations;

The empowerment model – A kind of industry investment fund that provides incubator services for a specific segment, which is more restricted and can only target particular areas in certain cities;

The industry-specific model. Most of them are subsidy-oriented with limited sources of income. Projects of this type are more demanding over the upstream and downstream ecology.

The business environment is quite colorful, with abundant possibilities and opportunities. Here are a few things that are worth noticing for the development and operation of coworking businesses, regardless of business models: 

More investment into business model innovation; 

Formulate practical product strategies that conform to the rules of the sharing economy; 

Introduce and train industry professionals; 

Leverage on and integrate the traditional real estate resources.

In a nutshell, to seize the future opportunities of coworking in the long run, three elements are required: a mature and feasible business model, sustainable and profitable business capabilities, and core products with real value for upstream and downstream businesses. The future of the coworking industry belongs to the brands that can provide multi-level assistance to the development of enterprises, add value to upstream owners, and offer a full chain of services for the industries.”

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