WeWorked: as WeWork battles with bankruptcy, what’s next for the coworking sector?

Weeks after WeWork aired doubts about its own ability to stay in business, the company is now reportedly seeking to renegotiate nearly all of its leases to stay afloat.

The coworking colossus has 777 leases in 39 countries – including office space in central London. Its long-term lease obligations total more than $13bn, a sum of money it will struggle to afford, with shares having plummeted by 95% since its first IPO in 2021.

By filing for bankruptcy, WeWork might stay above water. Hundreds of commercial landlords would be forced to give lease concessions, promising time to get its balance sheets in order.

But it would be another in a string of PR controversies that has seen the company go from mammoth to malfunctioning. WeWork members and rivals are now waiting to see the impact of its potential collapse on the sector, and who will seize the coworking throne in its place.

Experts deride WeWork’s ‘unsustainable’ growth model

WeWork’s influence is such that its name is intertwined with the coworking sector. Like the verb ‘to Google’, it is one of a handful of brands which have slipped into our vernacular as a proxy for flexible, shared workspace.

Will Kinnear is founder of HEWN, a flexible workspace agency advising property owners and operators. Kinnear recalls that WeWork’s entrance to the flexible office market in 2010 “almost single handedly changed the whole perception of the sector”.

That whirlwind image has since faded, however, as ego triumphed over excellence. WeWork in 2023 is struggling to recover from accusations of a toxic organisational culture that allowed it to mislead shareholders and risk employee safety.

On top of this, WeWork’s fast-growth story has come crashing to a halt. In a business update in early September, David Tolley, chief executive, told landlords that WeWork would exit some “unfit and underperforming locations”.

“The sector was watching WeWork do deals that didn’t stack up,” Kinnear analyses. “Ultimately they have become a flexible workspace provider with expensive overheads, they simply couldn’t drive the revenues required in order to be profitable.”

WeWork “a lesson for startups”

Two companies have built global brands in coworking and flexible office space: Regus and WeWork. Both have run into huge financial difficulties while doing so. Regus famously went bankrupt in the US the first time it attempted to expand there.

“The flexible office market is very unfriendly to companies who try to scale quickly within it,” explains Jacob Fisher, COO at Runway East, a coworking office provider. “I’m not surprised by what has happened to WeWork.”

Fisher says WeWork’s leasing strategy consisted of hoping that desk prices would rise whilst fixed costs stayed lower. This became increasingly high risk as the property market dealt with the COVID-19 recovery, and now an inflationary environment and cost of living crisis.

That’s despite the big numbers that accompanied the organisation’s growth story. Since 2010, WeWork has raised over $22 billion in funding (including debt) from investors such as SoftBank, Insight Partners, BlackRock and Goldman Sachs, according to Crunchbase.

In August, however, the company’s balance sheets looked very different. It combined 40 of its shares into one in an effort to keep its stock price above $1 and avoid being delisted from the New York stock exchange (NYSE).

“Their ability to raise capital quickly and easily enabled them to grow exponentially, but the deals they entered into put the business at risk from the outset,” Kinnear analyses.

“There is a lesson here for startups – whilst raising capital has become a simple process over the last few years, it is how you deploy this that will decide your success.”

Occupants uncertain about the future

Not everyone is convinced that the end is nigh for WeWork. Some argue the company is simply too big to fail, perhaps swayed by the industry-leading brand image it cultivated with its inception.

As of June 2023, WeWork still supports 512,000 members globally – admittedly, a loss of 35,000 memberships in just six months. Yet as it bleeds cash, WeWork appears to now be passing on its debt to occupants, risking loyalty.

Oliver is a business owner based in the North West. His marketing startup has been based in a WeWork office since October 2021. According to Oliver, WeWork hasn’t communicated with his company so far, and his contract has been getting steadily more expensive.

“Since we’ve been here, prices have kept going up,” he tells Startups. “I don’t know what will happen next.”

Oliver is not deterred. He says he’s planning to tough it out. “We just signed a new 12 month deal in June but we pay monthly so we don’t have big deposits. It doesn’t affect us as much as larger companies,” he rationalises.

Still, there will come a point when the company cannot squeeze anything more from its majority-small business community. Already, the WeWork debacle has triggered some startups to empty out their lockers and begin searching for new premises.

“I wouldn’t comment as to what members should do,” says Fisher. “WeWork is still offering some great deals in the market. [But] we have definitely seen clients come to Runway East looking at space, explicitly sharing they are moving from WeWork to provide certainty.”

Coworking providers poised to fill the WeWork gap

WeWork has had a chokehold over the coworking sector for years. Its legacy has helped father new operators like Spacemade. If it is placed in chapter 11 bankruptcy, hundreds of commercial landlords will be hit, wreaking havoc on the global property market.

But crises also provide possibilities. With the office giant felled, new providers will have space to make an impact, and they seem determined to learn from WeWork’s mistakes.

“WeWork is a very special case which shouldn’t be used to judge other coworking operators,” says Fisher. “It’s an incredibly interesting year ahead. The ‘new normal’ is far from settled – so there’s fantastic opportunity for innovation in this space.”

One golden opportunity is the emerging concept of hybrid coworking. Research shows that employers are losing the return-to-office debate post-COVID, as workers cling to the benefits afforded by flexible working.

According to the British Business Expert awards, of the workers who are considering looking for a new role, 64% are doing so after being told to come into the office full-time.

In answer, flexible offices are offering part-time contracts, where the business pays for the exact number of days employees are in-office, per month. These can save companies almost £20,000 compared to traditional contracts.

“The market has welcomed new entrants who are doing lease deals more innovatively,” Fisher reveals. “In just the last few months we’ve seen demand for our ‘part time’ office offering really take off.”

Despite WeWork’s cautionary tale, Kinnear predicts that the flexible workspace industry is going nowhere fast. Its new strategy? Move away from the promise of cheap deskspace deals, and genuinely listen to the changing demands of today’s workforce.

“The number of different products and services provided by both operators and property landlords will only grow,” he says. “The opportunities for SMEs and corporates alike to find space that suits them has never been so bountiful.”