Reports that WeWork could file for bankruptcy as early as next week

WeWork, the firm that put coworking spaces firmly on the global map, is reportedly planning to file for bankruptcy after warning investors over “substantial doubts” about its future back in August.

The news follows a consistent run of problems that have plagued the company since its co-founder, Adam Neumann, exited in 2019 after a failed Initial Public Offering (IPO). With sales hit hard by the COVID-19 pandemic, shares plummeted by 95% by September.

According to reports by the Wall Street Journal, the venture capital-backed business could file a petition for Chapter 11 as early as next week, marking a complete 180 from its $47bn valuation four years ago.

Hundreds of landlords across WeWork’s 39 countries of operation will now be asking who will guarantee their rental income, while small businesses worry if their business premises will remain open.

What does this mean for WeWork?

WeWork’s expected bankruptcy means it joins a cohort of business failures triggered by the pandemic and worsened by the current world economic crisis.

Hit by a drop in member numbers as many moved to a remote working model, and facing mounting liabilities, the company has also been impacted by high interest rates that have made borrowing more expensive.

Those financial concerns have worsened considerably this week. After the story broke late Tuesday evening, WeWork shares fell by more than 40% in after-hours New York trading.

Filing for bankruptcy does not mean that every WeWork office will turn its lights off from tomorrow. Instead, the move protects the company from legal action from disgruntled landlords, to whom it is unable to afford making lease payments.

In a business update in early September, David Tolley, the chief executive, told landlords that WeWork would exit some “unfit and underperforming locations.”

How does WeWork’s bankruptcy affect the UK’s SMEs?

UK SMEs based in a WeWork building will now be wondering how the latest announcement will affect them. Some have already felt the impact. Last week at The Bower in Old Street, WeWork’s occupiers were temporarily blocked from accessing the building.

As WeWork doesn’t own any of its office space and rather pays rent to landlords, WeWork UK members will not have the same rights and protections as tenants should the provider file for bankruptcy.

If this does take place, members are unlikely to be pushed out of their offices. They will only be locked out of the building if WeWork cancels its agreements with landlords. Depending on their contract terms, this could mean they don’t get their money back.

Given that the majority of WeWork’s 653,000 members have signed short-term agreements, the financial impact will hopefully be kept to a minimum. Those that have signed six-month or year-long contracts will be less lucky.

However, this is a worst-case scenario. WeWork could get rid of just one of its buildings, which means its members may be able to switch to a new location. Landlords could also find other flexible workspace operators to take over WeWork’s leases.

Will Kinnear, founder of the coworking agency HEWN, explains: “It is important to note WeWork is not the flexible workspace sector, as elsewhere the sector is booming. WeWork’s downfall does not necessarily reflect the market as elsewhere operations are stable and thriving.”

What should WeWork members do now?

With no statement or information coming from WeWork so far, its member base in the UK is at a crossroads. Startups spoke to one business owner whose business is based at a WeWork in Manchester. They said they learnt about the news today at lunchtime, having had no prior warning from the coworking provider.

Kinnear advises WeWork members to consider their next step. “You can either wait and see what happens – it’s likely the landlord is already speaking to a new operator – or start looking for a new space with an operator you feel aligned with, like The Office Group, Co-Space, or Spacemade,” he suggests.

Should you decide to start shopping for a new premises, Kinnear recommends moving quickly.

“If the worst does happen and WeWork’s occupiers must leave, then there will be huge demand for flexible space in a very short time frame,” he explains. “Those operators picking this demand up will start changing their pricing structure as supply becomes constricted.”

Read our below guides to the top cheap coworking spaces in the UK for alternatives to WeWork:

• London
• Manchester
• Birmingham