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13 November 2019
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CO-WORKING UNICORN: WAVING OR DROWNING?

Graham Davies
Graeme Davies writes for Investors Chronicle

04 November 2019 | Graeme Davies


Graaeme Davies assesses what the future holds for shared office provider WeWork.

Many column inches have been expounded of late on the dramatic  reversal of fortunes of shared office provider WeWork. The firm, counted by commentators as a ‘unicorn’– the moniker applied to the increasingly common privately held companies that have amassed a valuation of $1 billion-plus – was forced into abandon its plans to float as a public company. Cash-crunch fears and wobbling global equity markets gave investors cold feet about the initial public offering (IPO). 

Such has been the climb down that co-founder and CEO Adam Neumann has been forced to step into a non-executive ‘observer’ role while his main investor, Japan’s SoftBank, worked out a rescue plan worth about £7.3 billion. 

WeWork grew rapidly across the globe by gobbling up prime real estate properties in more than 500 cities and fitting them out with shared office spaces characterised by uber-cool decor and facilities – think barista coffee bars and pool tables – aimed at up-and-coming businesses and the millennial workforce. But prime locations are expensive, and WeWork rapidly built up considerable debts despite fast-growing revenues and a change of management will have to result in a change of pace if the company is to consolidate and thrive in the long term. 

This prompts a concern for commercial property firms that have ridden the boom in flexible office space, which has helped to prop up commercial property markets while demand from other sectors has been prosaic. In London, such space has accounted for 17 per cent of demand since 2016, with WeWork alone accounting for 6 per cent, according to Cushman & Wakefield. 

WeWork’s scale means it has amassed $47 billion of rent due to landlords over the lifetime of the leases it has signed. 

Its expansion, and the wider boom in flexible office space, has certainly supported the commercial property market and landlords are happy to hand over management of their sites to such companies. But a pause in WeWork’s expansion coupled with a wider economic slowdown could go some way to pulling the rug from under the commercial property market. 

WeWork had planned to raise up to $4 billion from new investors at its IPO and had another $6 billion in funding from core lenders and investors lined up. As we went to press, however, the lifeline payout involves the likelihood of about 2,000 job redundancies. 

WeWork s fate is not unusual; many fast-growth firms build up considerable debt in the growth phase, predicated on booming cash flows as critical mass is reached servicing and paying down those debts in future. 


Graeme Davies writes for Investors Chronicle