WeWork – Reshaping the office landscape

WeWork, now valued at $10 billion, offers coworking spaces for a new type of worker. Will they continue to win? Read this post and you will/might find out.

WeWork offers office space to individuals and companies with minimal commitments in terms of time and space.  Potential customers / tenants of WeWork are typically startups looking for working space who want to avoid long-term leases, but also want the flexibility to expand if their company continues to grow.  Established companies also utilize WeWork’s space when  they want a footprint in a particular city, but don’t necessarily need a full office space.  Boston, for instance, has two locations at South Station and Fort Point.

 

WeWork makes money with arbitrage, essentially.  The company leases space from office buildings within popular cities for white collar workers and then rents out that space on a monthly basis for more than it pays.  WeWork was recently (June 2015) valued at $10 billion after receiving an investment from Fidelity Management.  When looking for additional space, WeWork targets newly built commercial properties as an anchor tenant.  From a property manager’s perspective, WeWork is an attractive customer because they not only commit to space prior to the completion of construction, but as WeWork’s presence grows, they are also likely to expand further within your office space.  This was the case in WeWork’s Boston office, where it started with just a single floor of office space and now has at least three.

 

In addition to providing working space, the company promotes its community appeal.  The company hosts industry events, encourages tenants to mingle with other individuals/startup members at WeWork happy hours, provides games like ping pong tables, and even offers free beer in common areas.  While I don’t believe that these are reasons a typical WeWork tenant signs up, they may be reasons to renew their memberships.
WeWork spaces are typically broken down into three categories:

 

  1. Dedicated Offices

WeWork’s customers choose dedicated offices at their locations when they want maximum privacy while taking advantage of WeWork’s resources.

 

  1. Dedicated Desks

Customer choose their dedicated desk option when they expect to return to WeWork frequently and would like to have a space that they can leave items like computer monitors, filing cabinets, etc.  This option incorporates more of the community feel than the dedicated office option.

 

  1. Open Office Space

The Open Office Space option is ideal for individuals with small budgets or those who visit WeWork spaces infrequently.  I see this option as a significant step up from working in a coffee shop or library.

 

In order for WeWork to continue to win, you have to believe that the company is immune to the setbacks that commercial property developers/managers face.  When the economy is in a downturn, commercial property tenants are difficult to come by, which leads to vacant spaces or significant price drops.  Some argue that WeWork’s business is also dependent on the high degree of startup investing from angels and venture capitalists over the past five.  A downturn in either of these categories could result in significant revenue hit.  One argument to suggest that the company could weather difficult times is the fact that they don’t own their property.  In a situation where tenants are difficult to come by, they could presumably scale down in terms of the space they lease.

 

Short video on WeWork:

https://www.youtube.com/watch?v=NF8rxQStkKA

 

Wall Street Journal Article on valuation

http://www.wsj.com/articles/valuation-of-shared-office-provider-wework-soars-to-10-billion-1435181485

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Student comments on WeWork – Reshaping the office landscape

  1. I love this company as many of my friends have office spaces there and I have visited the premises a bunch of times. The point about the downturn affecting their revenue stream is a real one, but it seems like not many of these companies are necessarily VC-funded aka if VC funding were to dry up they are unlikely to disappear. Classic case of disruptor (as we learn in BSSE 🙂 with their vanilla offering that is convenient, cheap and does not lock you down long term. It’s the SMB’s dream! It is also true that they don’t own the space but they still enter into long term lease agreements and pay a ton of money into renovating the whole space. Given they only are in big cities now also means that rising real estate costs are probably affecting them more than they budgeted for.

    One interesting thing about the community aspect is that now they have an in-house incubator-like formation dubbed “WeWork Labs” that select companies on their growth potentials (you have to apply to get in). Similar to the benefits that iLab provides to HBS entrepreneurs, industry experts and investors are made available. Not sure yet exactly what the value add of this service is for the Labs community, but it will be interesting to see whether this will become a hot bed of activity that could attract real attention from the investor community and in turn increase the attractiveness of the offering.

  2. WeWork’s success is particularly interesting when you consider that renting shared, temporary office space is typically a less-desired, lower-status alternative to a permanent office of one’s own. WeWork has been able to build a ‘hot’ brand with a start-up feel and leverage that brand to expand nationally. However, beyond brand, I wonder what their competitive advantage is in this space. Nazli’s comment notes the in-house incubator, which could be that barrier to entry, but, as of now, craft beer kegs and yoga classes are not enough to keep out new entrants. Furthermore, as they grow, WeWork must figure out how to face increased scrutiny and criticism about their choices – the recent open letter on TechCrunch about the absence of lactation rooms in their Golden Gate location is likely only the first public complaint that they will face as they continue to grow.

  3. Interesting post! It definitely gives start-ups or freelancers a much more flexible opportunity in facing the runway years before your business really scales and you need a bigger space. Yet, I agree with mtv0302 on the fact that there are many start-up incubating spaces emerging and it’s hard to assume a competitive advantage to block out competition. I think one way to mitigate the risk might be having a good balance of tenants who possesses different functionalities who can mutually benefit the community there. For example, assuming that the majority of the tenants there are start-ups, having an IP lawyer with a small office there would be a functionality that everyone would benefit from. The same goes with small consultancies or start-ups who share the same technology who can learn from each other. If WeWork can control their tenant at each location to have a healthy mix or even an “expertise theme” of businesses, it might be an attractive advantage over other similar services as they cultivate a tighter and more coexisting community.

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