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 US$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. 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.
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. The decor, a blend of bright colors and industrial themes, appeals to millennials. The company has also attracted interest from major companies like Microsoft, HSBC and Facebook.
Companies with more than 500 employees now represent 40 per cent 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.
“Per square foot, it is much more expensive than a typical workplace,” said Mr 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.
Questions linger about whether WeWork’s business model is sustainable. The latest estimates value the company at US$47 billion even though it continues to burn cash: US$1.9 billion in losses last year with revenues of US$1.8 billion.
IWG’s revenues were almost twice as much last year, and it is also profitable and has a US$4 billion market capitalisation.
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 emphasise the difference between losing money and investing money,” the company’s 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, Mr 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.