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With its free coffee, couches and
glass partitions, shared workspace startup WeWork has shaken up both office
culture and commercial real estate.
Brushing aside questions about its business model, the New York outfit
shows no signs of slowing down and is now preparing for its Wall Street debut
to raise fresh capital.
As recently as this month WeWork was seeking to tap credit markets for $4
billion to expand its footprint in the market for co-working, according to
The Wall Street Journal.
When the French startup CybelAngel wanted to open a New York office,
WeWork was an obvious choice.
With only basic furniture, their current space overlooks Manhattan’s tony
5th Avenue, with a corner office next to a small conference room.
“It’s not cheaper” than a traditional office rental, said Jocelyne Attal,
CybelAngel’s head of operations in New York.
“But we don’t have to make a three-year commitment.”
She added: “There’s security, a reception desk, the building codes are
met, there’s housekeeping. We don’t have to take care of anything.”
The free Monday breakfasts and Thursday drinks don’t hurt, either.
When the company first appeared on the scene in 2010, the co-working
concept was only starting to gain traction thanks to new technologies
allowing professionals to work remotely.
And the global financial crisis actually helped business, as it drove
financial and creative professionals to launch their own startups.
“WeWork was the first to really gravitate towards all the demand from
first time entrepreneurs and small business,” said Alex Cohen, vice president
at the Compass real estate firm in New York.
At WeWork spaces, all office supplies and utilities are provided, right
down to internet connections and printers. And the decor, a blend of bright
colors and industrial themes, appeals to millennials.
But the company also has attracted interest from major companies like
Microsoft, HSBC and Facebook.
Companies with more than 500 employees now represent 40 percent of
WeWork’s clientele.
Officially renamed the We Company in January, the firm now manages 485
locations in 28 countries — often entire floors split into separate offices,
common spaces and individual work spaces that WeWork furnishes and sublets.
– Losses or Investments? –
“Per square foot, it is much more expensive than a typical workplace,”
said Cohen of Compass.
But for a small business, the benefits per person add up.
“You are sitting in a room with four or five other people, and included in
the desk space is the ability to use conference rooms, to enjoy the lounge,
the pantry.”
But not everyone welcomes the company’s rise.
“There’s been a certain amount of reluctance among owners about renting
space, in light of the fact that WeWork’s tenants are relatively short term,”
he said.
In a recession, the tenants will tend to clear out.
Real estate market players recall the misadventures of a company called
Regus — now an office space and co-working giant known as IWG — which
nearly went bust following the tech crash of 2001.
And questions linger about whether WeWork’s business model is sustainable.
The latest estimates value the company at $47 billion even though it
continues to burn cash: $1.9 billion in losses last year with revenues of
$1.8 billion.
IWG’s revenues were almost twice as much last year, and it is also
profitable and has $4 billion market capitalization.
Meanwhile, WeWork has ventured into new areas like residential apartments
and education, and tells investors they should see its quarterly losses as
investments.
“We really want to emphasize the difference between losing money and
investing money,” Chief Financial Officer Artie Minson told CNBC.
“At the end of this quarter, we have these cash flow-generating assets.”
Certain moves by co-founder Adam Neumann, such as personally investing in
real estate before renting it back to WeWork, have also caused some to grit
their teeth.
Nevertheless, Cohen says co-working has driven demand for commercial real
estate in major urban markets over the last five years.
“Many landlords, despite a certain amount of reluctance, or reluctance
among their lenders, have had to accept WeWork as a good opportunity for
them,” he said.
(BSS/AFP)
