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Will Coworking Survive the Collapse of WeWork?

Published on October 31, 2019 by Qasim Naqvi

WeWork came, it conquered! Once hailed as the company revolutionizing co-working, WeWork just went through an unsuccessful IPO bid. A brand that was being valued at almost $47 billion received a last-minute lifeline of $5 billion from Softbank. Experts say without the intervention, WeWork would’ve been out of cash by the end of the week.

The fall of WeWork was a topic that had come under discussion in the past however, it was the magnitude of the collapse that sent shockwaves throughout the industry. The situation has now come to a point where people are questioning the sustainability of the whole co-working model and debating how well it can cope with a recession.

Here we dissect what led to the collapse of WeWork and how coworking is going to grow despite the market feeling the shockwaves from the fall of a giant.

WeWork: What Went Wrong?

WeWork launched from a single New York City office in 2010. Under the leadership of their charismatic CEO, Adam Neuman, the company grew to almost 500 locations under their wing in the next 8 years. Today, WeWork owns more than 30% of all shared working space inside the US. The company secured multiple rounds of funding in the years leading to 2018, when they decided to launch a bid to go public.

This is when the business model and financial statements of the brand came under strict scrutiny. The company was valued at a staggering $47 billion yet made only $3 billion in revenues during 2018. On top of that, the company lost $900 million in the first six months of 2019. Naturally then, investors were skeptical leading to the company having to call off its planned IPO.

Analysis from industry experts reveals that the reason behind WeWork’s exponential growth was in part the post-recession market when the company set up operations. It targeted liquidators and landlords who were willing to sign long term, rent-free lease deals and back then there were many. As the economy began to recover, these opportunities faded away.

WeWork was still able to secure multiple rounds of funding through investors and that kept the business going even though it was losing cash at a faster rate every year. Eventually, something had to fall through and it did when the company tried as a last-ditch effort to launch its efforts to go public. While the future of WeWork is now uncertain, the impacts of this dilemma are going far beyond the company.

The Reason Coworking is Under the Radar After the WeWork Debacle

The collapse of WeWork has brought the whole coworking market under scrutiny. The general public and other stakeholders are raising questions with many equating the industry and its biggest player as one. However, there are aspects that point clearly to the fact that the general assumptions are wrong.

One of the biggest reasons why WeWork’s downfall put a shadow of doubt over the entire industry was because of the share held by the company in the overall shared marketplace in the US. WeWork is widely seen as the brand that kickstarted co-working. Its business model was picked and tweaked by a number of competitors to launch their own entities over the years.

What People Don’t Realize About the Co-working Model

Despite following iterations of the underlying model for WeWork, co-working as an industry is growing and not many people know about this. The rise in entrepreneurial ventures and preference given to flexible working spaces is behind the fact that according to stats from August 2019, the share of co-working in total working spaces around the US has gone up from 7.6% in 2018 to 8.6% now.

According to real estate firm CBRE, co-working has impacts way beyond the work environment. It is bringing a revolution to traditional real estate too. In the words of Senior Researcher Julie Whelan, the work behavior, culture and environment are changing faster than we anticipate. Organizations like the Freelancers Union are establishing their own co-working spaces in collaboration with major authorities like the City of New York.

Factors that Indicate Co-working will Emerge Largely Intact

Co-working has always been a fluid industry. WeWork rose as a company which provided a stepping stone and sense of direction to earlier players. Since then, there have been several innovations in this space and companies continue to develop new strategies and techniques to facilitate consumers looking for flexible and shared work stations.

Besides the continuing growth of co-working spaces not just in the US but across the globe, there are other indicators that highlight the soundness of the market. Startups like Industrious and Knotel continue to raise large amounts from capital investors in various rounds of funding. Also, while WeWork failed to show profitability in all its years of operation, Industrious expects its revenue to surpass expenditure by 2020.

Market penetration for coworking is still low indicating considerable potential for growth. Consumers demand flexibility and customization which is only available through shared working spaces. Although markets in Asia and Europe have hit 6% penetration for coworking spaces, cities like San Francisco and New York, USA still sit at around 3.5% each.

These signs collectively show that apart from increased scrutiny, the coworking industry is taking little backlash from the WeWork saga.

How Well can Co-working Cope with a Recession?

When all is said and done, the question which is being asked the most is the ability of coworking spaces to survive a recession. The collapse of WeWork is being touted as an example of what will happen to the market when the economy slows down. John Wheelan of CBRE’s Research division disagrees. In his view, there will be market contraction, and flexible office spaces will continue to provide companies and individuals with opportunities to avoid long term leases and cut rental obligations for increased operational efficiency.  

Conclusion

Industry experts are now keeping a close watch on how co-working as an industry will fare after the WeWork episode. The overall outlook though remains positive thanks to creative business models for coworking space providers and a general shift in work-related behavior from companies and people alike. The long term prospects for the market continue to look promising.

Category: Coworking