WeWork Cos. Inc.'s business model is strong enough to withstand the turmoil gripping the company and to defend its position as the leading flexible office space provider in London, senior figures in the U.K. capital's flexible office market told delegates at the Bisnow's Office, Leasing and Development conference in the city.
The company's parent, The We Co., decided to delay its IPO after failing to attract sufficient interest from investors, who were reportedly concerned about some of the company's financial relationships and the role of CEO Adam Neumann. The company's deteriorating fortunes prompted Neumann to resign, with two of his deputies appointed as co-CEOs.
"In light of the recent news, I think that this is a company issue for [WeWork], not a business model issue," Olly Olsen, co-founder and CEO of The Office Group, which operates flexible office spaces at 50 locations, mainly in London, said during a panel discussion at the conference Sept. 26.
"If you were to undo some of the layers that we're all looking at, some of these news articles, what you'll find is a robust business model with exceptionally high demand," he said, adding that this demand was reflected in his own firm's lead-flow, which has never been so high, and was coming from a new range of sectors and industries.
WeWork, which is The We Co.'s core business, has transformed the London office market since its entry in 2014 and is among the largest corporate occupiers of office space in the city, with over 50 locations and a total of 3.5 million square feet of space.
Nic Pryke, creative director at office design company Oktra, said the company had transformed the market's perception of flex space, which companies were once embarrassed and apologetic to admit using.
"The PR machine of WeWork, and the way they have arrived in London and generated attention has turned that around," Pryke said, adding that it is now considered the norm for a large business to use flex space.
The shift has become permanent, said Enrico Sanna, CEO of flex space provider Fora, which owns and operates 11 freehold office properties in London. "When I talk to large occupiers about their needs, I don't know anybody who talks about shrinking their flex and increasing their core," he said. "All the discussions are quite the opposite. Flex is here to stay. There will be providers who will come and go. But there is a market for a number of players."
James Lowery, co-lead of Storey, the flex space division of one of the U.K.'s largest listed property companies British Land Co. PLC, said WeWork's business model had made traditional office landlords rethink their approach to the market. "They are meeting a customer need and that has changed the way that, particularly from a landlord point of view, the commercial market looks at their customers," he said.
Still, WeWork's recent troubles have exposed the dangers of such rapid growth, he added, saying there are some fundamentals about running and growing a business in a sustainable way that "we can all probably learn from."
On a separate panel, Lesley Chen Davison, chief investment officer at Seaforth Land Holdings Ltd, said WeWork's current difficulties could lead to the company vacating some space in the London market. But the business still has a bright future.
"I would predict a consolidation move; maybe they have to give a few buildings back," she said. "But it is absolutely an in-demand product. A lot of the headlines [are due to] their financial shenanigans, they played with their reporting. But the fact is the business model is still a good business model."
Any consolidation by WeWork in the London market may impact smaller flex space operators, said Oktra's Pryke. "It is a challenge for some of the smaller co-working businesses, and the ones who operate spaces below 10,000 square feet where it's harder to make money. They're going to perhaps see a more negative situation if WeWork have to really start to balance their books and get themselves into good shape."
Where WeWork and its peers in the London flex space market might struggle is in a deep recession, said Zach Vaughan, head of Europe at Brookfield. "What would really hurt the market more [than WeWork consolidating] is some massive economic shock that would cause people to [cancel their] WeWork membership or work from home. That is a bigger risk than something happening financially to WeWork."
