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WeWork IPO fiasco "sideshow" to flex market boom, says top UK property CEO

WeWork Cos. Inc.'s aborted initial public offering in 2019, and the subsequent fallout, is a distraction from the wider success and potential of the flexible workspace sector, Toby Courtauld, CEO of Great Portland Estates PLC, said at a conference.

Speaking at the 2020 EPRA Insight event on Jan. 7 in London, the boss of one of the U.K.'s largest listed office landlords said the New-York based co-working giant's problems were down to poor management rather than issues with the flex model itself.

WeWork postponed and then canceled its plans to list the company publicly after failing to attract sufficient interest from investors, who were reported to be put off by revelations in the company's IPO prospectus. CEO Adam Neumann resigned shortly after the decision amid questions around his financial relationship with the company and his leadership approach, and the company's value was severely written down. Long-time backer SoftBank Group Corp. is in the process of taking control of the company with a $9.5 billion investment that took its stake in WeWork to 80%.

"The storm around the WeWork failure and the sense that the flex office and co-working sector was being tarred by the WeWork brush is a sideshow," said Courtauld, whose company owns about £2.65 billion worth of prime office property in London. "That was a business that was set up wrong, that was managed less well than it should have been, and failed as a result of expansion that didn't work. The fundamental question as to whether flex offices and co-working have an important place remains as valid as it did before [WeWork] even started: It's crucial, it's great, and I don't see it disappearing."

Great Portland Estates, which has a market capitalization of about £2.14 billion, has launched two flexible workspace offerings in the past two years. An in-house flex operation has let about 40,000 square feet of its space to customers at a number of its buildings, while a partnership with co-working and flexible office space provider Runway East offers almost 50,000 square feet of space at its New City Court building.

Both have performed extremely well for Great Portland Estates, and are likely to remain a key feature of its offering, said Courtauld. "It is an essential part of an ecosystem like [London] to have a big suite of nurseries in which new companies can be formed and then grow into larger space," he said. "We've been incredibly pleased with the [high] number of enquiries we've been getting for relatively flexible leases. The amount we've been able to charge for that flexibility is fabulous. I don't see that going away at all."

London has been a particularly keen adopter of the flexible workspace model. Flex operators accounted for the largest proportion of office take-up in Central London between January 2018 and June 2019, according to a report by real estate services firm Cushman & Wakefield. While 2017 was the best ever year for flex office take-up in the city, when about 2.5 million square feet of space was leased by the sector through 63 deals, demand has remained similarly strong since, the report said.

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Chris Grigg, CEO of one of the U.K.'s largest listed landlords British Land Co. PLC, said his company's experience of the flex market has been worthwhile despite the additional costs the model necessitates. British Land owns about £11.72 billion worth of built and development property, of which over half is invested in London offices.

"Storey, which is our flexible brand, has been very positive in terms of driving higher initial rents," Grigg said, adding that while the flex model requires more staff to handle the leases, the costs are manageable. "There's a bit more risk in [the flex model], but then that's spread around the whole business. And it is a service that, absolutely, our existing tenants really welcome."

Beyond those companies content with occupying large headquarter buildings on long leases, the London office market is likely to require landlords to adapt to a much more flex-driven market, Courtauld added. "I would go so far as to say that much of the market is going to move toward a flex offer where the landlord has to be able to provide more service and a greater degree of the provision of the things that customers are after or they will not succeed," he said.