WeWork issues warning signal as it admits “substantial doubt” over future

Coworking giant WeWork is struggling to stay afloat after a dramatic fall in shares, raising concerns for its small business members. Here’s what you need to know.

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Helena Young

Shares in the flexible workspace company, WeWork, fell by close to 24% yesterday, after it issued a statement admitting to “substantial doubt about the company’s ability to continue”.

WeWork’s outlook has been far from positive for a number of years. Various reputational scandals have combined with a dramatic decline in value, with shares in the company now having fallen by more than 95% in the last year.

Commenting on the news, WeWork’s Interim CEO, David Tolley tried to shrug off concerns, saying “our long-term company vision remains unchanged”. However, the same statement warned that WeWork would need to improve profits in the next 12 months to stay afloat.

The update raises substantial concerns over how WeWork’s financial troubles will impact its half a million business members, the majority of whom are SMEs.

Why have WeWork’s shares tumbled?

WeWork’s latest statement is yet another twist in the company’s staggering business journey, which has been marked by remarkable success, followed by a substantial fall from grace.

As one of the earliest names in the shared office industry, WeWork was at one point synonymous with the name coworking, and was ranked among the most valuable private companies in the world.

Founded by Adam Neumann and Miguel McKelvey in 2010, business leaders heralded the company as representing the new era office working with an emphasis on collaborative working in open spaces.

By 2021, it had established over 800 locations worldwide, having reportedly committed around $47bn to landlords. However, at this point, questions began to emerge from investors about the sustainability of the WeWork business model.

Financial documents revealed it had never actually turned a profit, and was in fact losing money rapidly. The company’s worth evaporated, and its Initial Public Offering (IPO) on the NYSE failed.

In a severe case of bad timing, COVID-19 then arrived. National lockdowns and a shift to the work from home model hit the commercial premises industry hard. Having lost millions as membership fees dried up, WeWork has since taken drastic steps to save money, including closing 40 locations in late 2022.

In 2021, it finally achieved its public listing after a two-year delay. The deal valued WeWork at $9bn – roughly a fifth of its estimated value in 2019.

If that wasn’t enough, there are the PR disasters. Reports of a toxic, ‘frat-boy’ organisational culture were verified by three lawsuits alleging race discrimination and sexual harassment.

Neumann himself was accused of exhibiting questionable behaviour, including alleged drug use. In 2019, he received an exit package of $245m in company stock and $200m in cash. Despite this, his legacy has been tough for WeWork to shake.

What does this mean for WeWork members?

While not entirely unexpected, WeWork’s demise signals a severe threat to the UK’s startup landscape. As of June 2023, the company supports 512,000 members globally.

Around 80% of WeWork spaces are used by sole traders or small businesses, and its website currently claims to provide thousands of UK startups with “dynamic environments for creativity, focus, and connection”.

Should WeWork fail, this could displace thousands of UK startups, potentially disrupting business operations. They could also end up losing out on months of membership fees paid upfront, jeopardising cash flow in an already challenging economic environment.

What comes next for WeWork members is unclear. But in today’s uncertain economy, it is best to plan for a negative outcome.

Those that pay month-to-month should take advantage of their flexible payments and keep an eye on the company’s trajectory in case a speedy exit is required. It goes without saying that new sign-ups are not a wise decision given WeWork’s current situation.

Those locked into a long-term membership agreement have fewer options. WeWork is strict about not refunding fees upon contract termination. Businesses should plan for the worst, and budget for the costly event that they must find new premises before their contract ends.

What does this mean for the coworking industry?

WeWork is blaming its current financial situation on the post-COVID shift to working from home. Remote teams are apparently cancelling memberships, causing the company to bleed cash. But this line of argument doesn’t entirely add up.

Industry analysis by the debt advisory specialists, Sirius Property Finance, reveals that the UK’s service offices market is set to grow by 17% in 2023.

While the shift to remote working means the sector may struggle to match its pre-pandemic highs, plenty of providers have seen success in 2023. That includes Work + Play, a coworking provider based in North London, which has jumped on the flexible working trend to offer more flexible, affordable pricing plans to hybrid SMEs.

Commenting on WeWork’s challenges last month, co-founder Tobias Batkin told Startups: “I think that there’s many parts of WeWork that have been very successful. Unfortunately, they expanded too quickly and they signed themselves into covenants that they can’t meet.”

“WeWork has too many outgoings compared to its potential income. It’s a very classic business failing. They overextended beyond their means.”

WeWork’s financial woes are instead representative of a tech bubble that has been threatening to pop for years. Overvalued companies that have yet to turn a profit, such as Uber, have been on a similar money-losing ride.

It’s a sad end to the WeWork story. Rather than the hyped-up narrative of rapid tech success analysts thought it was, the company’s tale is now a cautionary one.

High burn rate is not a sustainable model for startups. Particularly in today’s harsh trading landscape, with VC investment stalling, WeWork’s hardships are a reminder that slow and steady cash management is the key to survival.

Considering quitting WeWork? Check out our guide to the top cheap coworking spaces in London.

Written by:
Helena Young
Helena is Lead Writer at Startups. As resident people and premises expert, she's an authority on topics such as business energy, office and coworking spaces, and project management software. With a background in PR and marketing, Helena also manages the Startups 100 Index and is passionate about giving early-stage startups a platform to boost their brands. From interviewing Wetherspoon's boss Tim Martin to spotting data-led working from home trends, her insight has been featured by major trade publications including the ICAEW, and news outlets like the BBC, ITV News, Daily Express, and HuffPost UK.

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