Posted by Paul Daniels, Partner
WeWork, WeLive, WeGrow…
As “co-working” and “flexible office space” become everyday terms, we look at the sector’s best-known start-up and determine what sets it apart from the competition.
Don’t know much about WeWork? Here’s the lowdown:
Referring to WeWork as a start-up is actually incorrect: the international co-working enterprise now boasts 701 locations in 28 countries and 121 cities. With a $47 billion (£36bn) valuation and plans to go public later this year, it’s hardly a start-up anymore.
The name: rebranded to The We Company in January 2019
Founded: in 2010 by Adam Neumann, Co-founder and CEO, and Miguel McKelvey, Co-founder and CCO)
First location: SoHo, New York
What WeWork do: provide shared workspaces for technology startup subculture communities, and services for entrepreneurs, freelancers, startups, small businesses and large enterprises.
What else? WeLive – providing fully furnished flats for a few nights or a number of months. WeGrow – a school for 2-11 year olds
How big are they in the UK? Very. WeWork became London’s biggest office occupier in January 2018. Last week alone, HSBC signed up for 1,135 desks at its soon to open building at 2 Southbank Place.
Profits: None yet. In 2018, The We Company made a loss of $1.9bn.
The We Company states that it’s “in the early stages of disrupting real estate, the largest asset class in the world.”
What gives We the edge?
Design, for one. “Original, timeless, unpretentious, elegant, functional, comfy and fun.” These are words We’s global head of design uses to describe what a WeWork office space is supposed to be.
Design has played a very important part at We since its inception. The company employed interior designers from the start, with the design department now numbering an impressive 270 architects and 240 interior designers. In fact, We has branched out into office design and has plans to compete directly with traditional architecture and design firms.
And let’s not forget the sheer scale of We. With a range of high profile investors from across the globe, in 2018 We was able to surpass its target of 260,000 members and reach an unprecedented 401,000 members.
But is The We Company a true disruptor?
In short, no. While the look and feel of The We Company is very trendy, tech-y and its spaces designed with millennials and Generation Z in mind, analysts argue that in reality it’s not so very different from rivals such as IWG, which used to be known as Regus.
While tech firms like Uber or Deliveroo, are first and foremost platform-based, We is essentially a ‘real-estate-as-a-service’ company and as such a very capital intensive business to run. Its – substantial – revenue needs to be invested in getting new leases, doing up offices, maintaining them and segmenting them into chunks of flexible workspace.
Is WeWork the challenger? Or does it face all the same challenges as its (smaller) competitors?
The level of investment and economies of scale available to WeWork are clearly advantages which have enabled WeWork to gain market share and build its brand quickly. However, the business still needs to produce income (and profits!) and to deliver this WeWork needs more customers. These customers (or “members”) need to consider WeWork’s work environments to be more appealing and offer better ‘value’ than its competitors.
But can WeWork stay ahead of its smaller, potentially more nimble competitors in a world where “big brands” are not always appealing and where corporate social responsibility and environmental impact will be an influencer for the more discerning buyer? WeWork’s decision not to serve meat at any of its staff or hosted events is a positive step to reducing this impact but will not appeal to all.
For all the claims of its founders that the company’s value is built on “energy and spirituality”, investors ultimately require a return on their investment and unless WeWork can deliver some tangible profits, the patience of its investors may start to run thin. WeWork’s success relies upon growth and market share but this growth requires capital and its business model involves taking on huge lease commitments in prime office locations so there is little margin for error.
What’s in store for flexible workspaces?
The co-working space market is set to grow. In a report published earlier this month (June 2019), property agencies, JLL and Hubble predicted that flexible offices will account for about 11% of London office stock by 2023, up from 6.3% at the end of 2018. As such, the opportunities are still out there but will WeWork still be climbing high or licking its wounds?
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