What’s The Future of Work After WeWork?
A WeWork location in Santa Monica, CA, on March 20, 2023. (Image: AFP)
What started out as a revolution in how people work has ended in a burst of flame as WeWork filed for bankruptcy last week. The co-working company, which was once valued at $47 billion, faced increasing obstacles that eventually proved too difficult to overcome, causing the stock to fall by around 99%. At the time of its bankruptcy, WeWork was only worth $50 million.
Throughout its relatively short 13-year history, the brand of WeWork has grown to be synonymous with co-working. Despite this, the exit of WeWork from the public stage comes at a time of rapid growth of the office-sharing industry.
Many experts blamed WeWork’s unique business model that put it at more risk as the pandemic raged. Unlike other services that partnered with property owners to offer services, WeWork rented properties directly from landlords, which increased risks with the pandemic, and worsened further with the subsequent exodus from city office space. At its peak, WeWork had $19 billion in debt, which the pandemic made harder to pay off as tenants and companies canceled their WeWork memberships. John Arenas, CEO of another co-working company, has questioned WeWork’s business model, saying, "I've been through four recessions in this industry in 30 years – and a pandemic, so that's five – and a long-term lease is longer than the cycle. It's just a mismatch that way."
Other co-working companies, instead of leasing their spaces, operate their offices for a set fee. While they may earn less during peak hours, these models tend to be more stable as they do not have to pay the high costs that come with leasing. For example, IWG, one of the first co-working companies, gives up two-thirds of its profits on co-working space to its own landlord. As a result, the company is free from leasing costs, which require high amounts of borrowing to cover. These typical leasing costs have been made even harder to pay off, as the exodus from commercial real estate has caused leading banks to lend less to companies who might need to cover these costs.
A co-working space. (Image: WeWork)
There have been many questions about the future of co-working since WeWork has gone bankrupt, but analysts still believe that the future is bright. "Prior to the pandemic, there was so much evangelizing that still needed to be done about why hybrid and remote work should be integrated into organizations," said Sara Sutton, CEO of remote-job service FlexJobs. "We don't have to evangelize that anymore. Everyone knows it's established, and organizations are now formalizing their remote or hybrid stances."
Established as it may be, co-working remains a niche in commercial real estate. Flexible office spaces account for less than two percent of office space in the 20 largest U.S. markets, according to Cushman and Wakefield. And the pandemic has taken a heavy toll on co-working along with commercial real estate: the real estate services firm JLL once believed that flexible offices would make up a third of all office space. But, some observers, like Michael Emory, founder of Canadian REIT Allied, argued that this scenario would be very difficult to realize, saying, “There wasn’t a snowball’s chance in hell of that happening.”