(Yicai Global) May 7 -- China's co-working space sector has greatly slowed its expansion under the growing pressure of an economic downturn and an ebbing capital tide. 

The sector has never turned a profit up to now, an insider told state media Securities Times today.

The purpose of shared office space is to trim outlays on office rentals. Workers from different companies are housed on the same premises. They complete their own tasks independently in the specially-designed and set up area.

The business model for most operators is to rent an office building, remodel it into separated office spaces and a shared coworking space with standardized decoration and lease it to companies or entrepreneurs for a rental fee. This approach demands high occupancy for profitability, which is not easy to achieve when compnies are furiously expanding and setting up new shared offices, so addiction to financing becomes inevitable.  

Coworking space made up only 4.3 percent of Beijing's office building transactions in the first quarter, far less than the annual proportion of 17 percent last year, Los Angeles-based commercial real estate services firm Debenham Thouard Zadelhoff reported.

Chinese operators of sectioned offices opened no new locations in the first quarter and fell back on a holding action strategy, while foreign operators continued to set up new branches in core regions, said Sun Zutian, director of the North China Research Department of commercial realty service company CBRE Group, which is also based in Los Angeles. The sector thus displays polarization, Sun added.

This major shift stems from slowing economic growth, funding woes, high office rents and a dearth of suitable sites. Operators grew aggressively, opening many co-offices last year, so they are now more wary about site choices faced with ferocious competition, Sun noted.

The sector's development reached an apex between 2017 and last year as main players vied to become top dog. Market liquidity was good from 2017 to last year's first half and financing was easy, so the business shot up. Cash became scarce from the second half, however, and as a money-burning sector, office-sharing suddenly went from an investment darling to an untouchable, said Wei Dong, director of ZTE's North China Research Department. 

The sector's overriding issue is to find a clear profit model. Domestic operators can no longer forgo profit and feed off financing, an insider with a shared space operator said.

The sector may now find itself frozen in a 'capital winter' and growing slowly, but its spring cannot be far behind, the insider said.

Editor: Ben Armour