Resilient Workplace
For those that found themselves working, #Week33 was a tricky time of trying to avoid the envy-inducing holiday pics of colleagues on social media. But even the most vigilant couldn’t escape the sunny backgrounds of various video calls as many people took advantage of the “work from anywhere in August” policies that are increasingly common. Just at Innesco, we’ve had people working from Spain, Morrocco, Turkey and Wales.
The perk is a natural extension of the #hybridworking practices that have proliferated since the pandemic. It is the same changes that have underpinned the exponential growth in #co-working and #flexibleworkspace providers in recent years. Which makes this week’s analysis of WeWork’s announcement that it has “substantial doubt” about its ability to stay in business all the more interesting.
WeWork’s troubles have been well-documented, but the scale of the problems it now faces – despite some successes in restructuring its debts and reducing lease liabilities – is still striking. In the first six months of 2023, it posted a loss of $696 million dollars (remarkably, a huge improvement on the $1.14 billion deficit of the same period in 2022), and only has a similar amount in remaining liquidity. The game isn’t yet up, but the referee is checking his watch.
With the dust settling from the news, it begs two questions. Firstly, just how worried should office landlords be? The answer, depending on their direct exposure to WeWork, is somewhere between “reasonably concerned” and “hugely anxious”. WeWork operates 777 locations in 39 countries, with a presence in nearly every major commercial city; that is a huge amount of empty office space to come onto a leasing market that is already grappling changing occupier requirements.
While demand for new, #primespace is often above pre-pandemic levels – see the pre-let success of projects such as Sellar’s Paddington Square and Mitsubishi Estate’s 8 Bishopsgate – many of WeWork’s locations are in buildings that need upgrades to return them to the top tier. It is no coincidence that Innesco is seeing increasing enquiries from office landlords that have realised the right comms strategy is essential if they are to overcome the challenges they face.
For a feel of the potential impact, consider New York. WeWork is the biggest tenant in the city with some 6.8 million sq ft of space, equivalent to three Empire State Buildings. If these offices suddenly became vacant, landlords would be trying to secure new occupiers in a market that already has a void rate of around 20%. This would have material effects on supply, rents, valuations and the loans that sit behind the assets.
The second question is around what this means for the wider flexible workspace sector: would WeWork’s collapse show the business model to be unviable? It is tempting to draw conclusions that don’t necessarily apply across the sector. WeWork’s management, at least until the fall of founder Adam Neumann in 2019, was eccentric to say the least. Overambitious to the point of recklessness, the scale it achieved proved to be unsustainable. Compare that to steadier growth of International Workplace Group (formerly Regus), which had net revenue last year of $120 million on a $2.75 billion turnover.
IWG and other providers will see the current situation as an opportunity for expansion, eyeing WeWork’s 650,000 global membership base. The demand is clearly there, it’s just a matter of getting the supply – and management – right. There remains plenty of cause for optimism about the future of flexible workspace, something that office landlords have more reason than most to be grateful for.