In the not-too-distant past, WeWork boldly claimed it would revolutionise the way people work, but recent events have cast a shadow on that vision. WeWork, once a pioneer in offering flexible office spaces on short leases, has now filed for bankruptcy protection, signalling a need for reflection on the trajectory of the co-working industry.
Despite the considerable investments made by WeWork and other players in the market, flexible office space still occupies less than 2 per cent of all office space in the 20 largest U.S. markets, a figure that closely mirrors pre-pandemic statistics, according to Cushman & Wakefield. WeWork’s bankruptcy filing aims to swiftly reduce its office space portfolio, surrendering over 70 leases, with more to potentially follow. While other co-working companies may absorb some of these locations, industry experts believe that this approach will likely remain a modest segment of the broader commercial real estate landscape.
The shift towards remote and hybrid work models has led many employers to downsize their office spaces, resulting in the highest office vacancy rates in decades. WeWork’s bankruptcy exacerbates this situation, leaving landlords with additional vacant space to fill.
Michael Emory, founder of Allied, a real estate investment trust, contends that while flexible office providers will persist, they are unlikely to constitute a third of all office space, as previously predicted by some. Emory emphasizes that landlords may continue to collaborate with co-working firms to attract tenants who may eventually seek their standalone spaces.
David O’Reilly, CEO of Howard Hughes Holdings, acknowledges the value of co-working as an amenity but asserts that it won’t dominate the commercial real estate business. O’Reilly underscores the potential for co-working to become competitive with landlords if it constitutes a disproportionate share of a building.
Overvalued
Amidst the challenges faced by WeWork, other co-working executives express confidence in their distinct business models. IWG, for instance, operates on a model where it shares profits with landlords rather than leasing space, providing resilience against financial downturns. Mark Dixon, CEO of IWG, believes that co-working is well-positioned in the era of hybrid work, offering flexible and shorter leases tailored to the evolving needs of employers.
While some co-working companies may face financial challenges, others, like IWG and Industrious, are optimistic about their growth prospects. IWG, with over 600 new locations planned globally, emphasizes profit-sharing with landlords as a sustainable strategy. Industrious, working closely with landlords, reports significant revenue growth, underlining the robust demand for flexible office spaces.
In conclusion, the demise of WeWork should not be viewed as the end of the co-working era. Industry players with adaptable business models and a focus on collaboration with landlords are poised to thrive in the evolving landscape of workspaces. As employers seek flexible and dynamic solutions, the co-working industry may well find new opportunities for growth and success.