Whether WeWork’s model has tapped into, or established a whole new, zeitgeist, it is clear that the traditional property companies and landed estates have had to react. Co-working, flexible offices are not a new phenomenon: WeWork now has over 400,000 members in its 400 locations worldwide. To date, it operates in over 100 cities spread around 26 countries.
WeWork has recently received a $2 billion investment from Softbank, which sounds ample; however when one considers that it was anticipating around $16 billion from Softbank’s ‘Vision’ fund, the picture becomes less rosy. Investor caution appears to be the main reason for the reduced spend: Vision’s investors felt that such a hefty commitment being given to a non-profit-making company was a little too risky. WeWork’s model has seen it commit around $3 billion to leases in the UK over the next two decades, with the view that these long-term commitments will be repaid through its short-term, higher-rent, arrangements. Last year the company made a loss of £32.3 million in the UK alone; three times more than the previous year. Couple this with the fact that the company ‘only’ took around 650,000 square feet in London last year as against 1.2 million in 2017, and images of Icarus falling back to earth might start to play out before your eyes. As ever though, a picture does not tell 1,000 words… WeWork has recently been given a valuation of $47 billion.
Now called We Company, WeWork has recently added new co-living and education branches in an effort to demonstrate commitment to growth and potential and as a message that, in a market striving for originality, it wants to continue to be seen as the trendsetter. WeWork has recently introduced a new feature to its app whereby members are able to offer up their skills to other members who may be looking for a freelancer or service and the app matches them up automatically - like Tinder for business.
In a UK real estate market that has seen 15 year leases become rare, 10 years leases uncommon and five year leases the norm, the question now is whether that trend will continue. The International Financial Reporting Standards came into effect this month, with the upshot being that leases will now need to be recorded as assets or liabilities on a company’s balance sheet (estimates of around £200 billion of liabilities will be added to UK businesses’ balance sheets). Will this see fewer companies committing to formal leases and instead opting for less secure, potentially costlier, but more flexible, licence arrangements that seem to be proliferating throughout the UK?
JLL clearly thinks so, estimating that flexible working will grow by up to 30% year on year. We have already seen 150 new flexible office providers open up in central London in 2018 and prices per workspace have dropped as a result. Add to this Landsec’s new ‘Myo’ flexible offering and British Land’s more established ‘Storey’, amongst many others, and the marketplace seems to be a lot more crowded than when WeWork first came on the scene in 2010. According to Landsec, Myo is not looking to undercut WeWork, or any other flexible office businesses for that matter, but is instead looking to accommodate the mid to upper end of the market, particularly those that are outgrowing their current co-working or serviced office space and looking to take their first HQ. Storey on the other hand is already operating out of around 130,000 square feet and will not let to any other flexible office operators. These two have both the clout and the contacts to really give WeWork a run for its money and are unlikely to be fazed by the latter’s continued expansion and innovation.
Whichever way you look at it, the increased competition can only be a good thing for occupiers, as each operator will seek to exploit new opportunities and to offer new incentives to stand out from the crowd. WeWork may still be the market leader, but to remain that way, it is going to have to continue to up its game.
For people who are just getting their business off the ground, hiring a permanent office doesn’t always make sense – which is why more and more start-ups are opting to work in shared spaces.