Harold Wilson famously said that a week is a long time in politics, however it would also be fair to say that a week is a long time at WeWork.
Since writing on the American serviced office operator ‘WeWork’ a matter of weeks ago for Fortnightly Thoughts this curious business has pulled its plans to proceed with an initial public offering, received the resignation of Founder and CEO Adam Neumann and, just yesterday, had its credit rating downgraded two levels by Fitch from B to triple C (negative outlook). Most worrying for WeWork Landlords (and Tenants) Fitch said in a note that the company would “dramatically scale back its growth ambitions and associated overhead expense that led to its precarious liquidity position”. Source: Financial Times.
As a property expert with more than 25 years’ experience dealing with, amongst other things, office tenants and buildings, I do not see the trend towards flexible office accommodation reversing. It is sometimes hard to believe that in the 1980s and early 90s, 25 year leases were the norm whereas today it is unusual to find an office tenant signing up for more than a 10 year commitment, and frequently less.
However, the flexible lease suits the dynamic nature of the businesses undertaken by many office occupiers in the 21st century and, as I previously commented, even large global businesses such as HSBC use flexible WeWork accommodation.
This trend has spawned the growth of a number of flexible office providers – not least Regus – now owned by IWG – incidentally valued at a paltry £3.6bn compared to WeWork’s pre-IPO $47bn, despite the fact that IWG makes a profit!
In London especially there are several up and coming competitors including FORA, backed by property specialists Delancey.
The principle difference between WeWork, FORA and the traditional serviced office operators such as Regus is that the new players have embraced co-working alongside the provision of traditional serviced offices. This allows individuals or small groups of people to literally rent a desk within a co-working hub and benefit from the synergy and social interaction of working alongside other people, rather than working from home as most likely would previously have been the case.
This seems to simply be an evolution of the serviced office model and not something radically different that makes WeWork or any of its close competitors particularly special (or valuable) or immune from competition on the same terms.
Co-working and serviced offices are clearly here to stay and whilst WeWork has undoubtedly shaken up the market, competitors are hot on their heels. If WeWork has to start watching its diminishing cash pile it will soon start to lose market share to ambitious competitors like FORA.