What WeWork’s stumble means for the design of co-working spaces

WeWork represents one-third of all flexible office space in the US according to CBRE, while an analysis by Jones Lang LaSalle Inc. indicates that it is the biggest private-sector tenant in London, New York City and Washington. Competitors will be looking to learn from the company’s recent 83 per cent decline in value following its aborted IPO. And while the majority of these are tied to the overall business strategy, they extend to how WeWork outfitted its property portfolio. ‘Experiences, amenities, aesthetics – that is important to a certain point,’ Julie Whelan, head of occupier research at real estate services firm CBRE, told Recode. ‘But what’s really driving people to the space is flexibility, speed to market, and capital deferral.’

This is particularly true now that growth in the sector is being driven by larger corporate clients who want to offer staff a variety of workplace provisions or easily establish remote teams in new territories. The precarious freelancer or small start-up team that needed to grab a hot desk and could be enticed by a weekly inspiration talk or beer are increasingly less important.

WeWork understood this, but perhaps too late. At the start of 2019, 40 per cent of WeWork’s members worked for companies with 500 or more employees, a 10 per cent increase on the previous year. Corporate clients offer more stability, taking on a greater number of desks and signing longer deals. It’s a model that’s seen companies like Regus weather several recessions, and is key to the success of new entrants like Knotel. Unfortunately for WeWork, the last few months have seen major prospective corporate accounts such as Amazon and RBS start to fall through.

Landlords will now likely start mandating a lower-touch approach from co-working operators. As Bloomberg reports, following WeWork’s difficulties, many property owners have been sounding out rivals to see if they’d potentially be able take over WeWork leases. But as Eugene Lee, global head of real estate at Knotel, explains, the standard WeWork is, ironically, inflexible to their needs. ‘They’ve spent billions of dollars building out co-working facilities. The millions of miles of glass partition that they used to be proud of, is now just something they have to deal with and you can’t make those partitions disappear.’

Many landlords were already growing frustrated with leasing to co-working brands, who accounted for close to half of office absorption in 2018. According to Real Capital Markets’ latest Office Investor Sentiment report, they’re one of the chief reasons tenant improvement (TI) costs are rising much faster than rents across the US. (TI costs are essentially changes made to the interior of a property to accommodate the needs of a tenant, from floor and wall coverings to partitions.)

Co-working operators’ TIs are often some of the largest, given the complexity of their user mix and the broad range of spatial typologies required to serve them. Add in the sort of aesthetic imperatives and hospitality elements championed by brands like WeWork, and the bill increases further. One case in point is the exposed ceilings favoured by the brand. ‘Tenants usually think that it’s cheaper for landlords or construction to go in and open up the ceiling and clean it up so that it’s your look, but it’s actually a lot more expensive to do that,’ Brenton Hutchinson, vice president of property management at Nightingale Properties, told Bisnow. In short, the party, or at least the free beer, is over. A more sober, but ultimately more sustainable, era of co-working design is now imminent. 

wework.com

This piece is featured in our current issue, Frame 132 – the Jan—Feb 2020 issue of Frame explores how office spaces are innovating to bolster employee satisfaction. Get your copy here.

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