The demise of WeWork and the future of serviced offices
WeWork, the US-based provider of co-working spaces, could file for bankruptcy within days, according to several reports.
The company has declined to comment on the reports, but the financial problems facing WeWork have been well-documented. WeWork was founded in 2010 and worked its way up to a valuation of $4.6bn (£3.7bn) by 2014. In January 2019 it was valued at an extraordinary $47bn (£38.5bn) after winning funding from Japanese investment giant SoftBank. WeWork was set to go public later that year, but questions from investors over its finances, governance and leadership led to the IPO being scrapped. Adam Neumann, WeWork’s larger-than-life co-founder, left as chief executive.
Then the Covid-19 pandemic hit.
Fast forward to today and WeWork operates from 662 locations, including 45 in the UK. However, the company has lost almost 98% of its stock market valuation in the last year and reported net losses of $696m (£571m) in the six months ending in June.
Mark Knops, founder and CEO of Sketch Labs, which helps businesses find office space, said that news of WeWork’s potential bankruptcy has been a shock, but that the warning signs have been there for some time.
“Over the last few years, their attempt to build a business which included the ownership of massive buildings which serviced their freelance/agile digital nomads was always going to hit choppy waters, especially in the last year and a half when interest rate rises started to hit the market and following a pandemic which saw the business massively restructure,” he said.
However, Michael Kovacs, founding partner of real estate investor Castleforge, said: “WeWork’s demise was more than just about Adam. They often picked the right location but in buildings with the wrong floorplates and at the wrong rents, then rented them out to the right tenants but on the wrong lease terms.”
As one of the largest commercial property companies in the world, bankruptcy for WeWork could have significant ramifications for the office sector.
Gabriela Hersham, co-founder and CEO of Huckletree, which also provides co-working space, said WeWork’s demise has shone a light on the industry and helped to spark a discussion around its impact on the property sector.
“Interestingly it has allowed challenger players more of a chance to enter into the market and expand sustainably, levelling the playing field. It also proves that in order to build and run profitable businesses, continuously offering heavy discounts is not feasible,” she added
Knops believes that independent players and organisations with enough acumen and experience can make the most of WeWork’s failure.
He said: “We will see more independent-led providers who can put the essentials into the mix whilst also being able to cater for more high-end requirements, including special features such as cinema rooms, entertainment spots and state-of-the-art meeting rooms which personalise and develop each tenant’s needs.”
TechNavio’s Coworking Spaces Market Analysis Report 2023-2027 estimates the amount of co-working space could decline at 11.23%-a-year between 2023 and 2027. So could other companies follow in WeWork’s steps as part of a wider industry slowdown?
Colliers’ Global Occupier Outlook 2023 report suggests a shift in the dynamic of shared workspaces, with flexibility set to become the norm. The report found two-thirds of corporate occupiers active in Europe, the Middle East and Africa are anticipating that up to 20% of their commercial real estate portfolio will move to flex leases from traditional leases within the next five years.
The flexible workspace market is already growing in London. In Q2 of this year, 8 out of 15 core London markets saw an increase in the number of desk rates achieved, compared with Q1, with notable spikes being achieved in Euston & Kings Cross – which saw a 36% increase – and East London – which enjoyed a 32% increase.
Hersham said: “Workspace needs have changed, and we have seen our standard length of agreements increase with more companies choosing flexible options and staying for longer.
“The flex market needs to continue to adapt to the changing landscape of work, focusing on creating workspace environments that bring people together, boost employee morale and harness connection.”
A survey by interior designer MoreySmith found that half of respondents said that the amenities of a workplace would impact their decision on whether to work for a company. This shows it has never been more important for office providers to prioritise amenities.
Andrew McCann, creative director of MoreySmith, said: “We now see that the industry has moved on from beer taps, office bars and cinema rooms to a more holistic view of design, focussing on the quality of design for employee wellbeing rather than quantity of amenities for fleeting gratification.”