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WeWork prospects hinge on growth of data in flexible workspace sector

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WeWork prospects hinge on growth of data in flexible workspace sector

The long-term success of flexible workspace giant WeWork Cos. Inc. and similar operators depends on the quantity and quality of data the sector can collect in the coming years, industry experts said at a commercial real estate finance conference in London.

More data on key operating metrics in the sector would help investors make better decisions about funding and underwriting flex operators, which should encourage investment and growth, said Nick Knight, executive director of valuation advisory at real estate services firm CBRE.

WeWork, which has led the disruption of the global office market with its brand of alternative design and collaborative working environments, announced at the end of April that it is planning an initial public offering. The company was valued at $47 billion following its last round of fundraising. Scepticism around WeWork and its rivals' business model persists among many landlords and lenders, despite the rapid growth of the flexible workspace sector in recent years.

"Currently, we have almost an absence of benchmark data to make judgments as to the sustainable levels of occupancy, appropriate rental levels, [and] operating margins," said Knight, speaking at the Commercial Real Estate Finance Council Europe event in London. "Once the track record is there and the data is there, as long as the sector has a culture of sharing that data and benchmarking, the question becomes whether we'll see values [of properties leased to flex operators] firm up and bank underwriting and credit committee attitudes change."

Knight pointed to the "clear parallels" flex operators have with hotel operators, and encouraged the flex sector to emulate the hospitality industry's culture of sharing, pooling and publishing data to help inform investors. A similar data-driven approach could provide the evidence necessary to counter claims by critics that the value of an asset is damaged by an over-exposure to flex operators, he added.

"If we look at the hotel model, it's perfectly possible and actually regularly observed that the trading history and trading potential of an asset does make it worth more than a [similar] leased asset," Knight said. "So it seems to me that as the flex market matures, there's no reason that we can't see the same phenomenon, as flex operators grow their expertise and we start to have more visibility and performance data through the cycle."

The global flexible workspace market has grown rapidly in recent years, with London and New York, the birthplace of WeWork, leading the way. In the last quarter of 2018, flexible workspace providers accounted for over 30% of office leasing activity in London, more space than was leased by any other business sector, according to CBRE. A survey of CBRE's occupier client base found that 55% plan to make either moderate or substantial use of flexible offices in their portfolio, Knight said.

Data could also offer flex operators, particularly those who own properties, a competitive advantage over more conventional landlords, said Enrico Sanna, co-founder and CEO of Fora, which owns and operates seven flexible workspace assets across central London. "If the flex sector continues to grow at the same rate, it'll know so much more about what happens in an office than real estate owners," said Sanna. "By having people every day using flex space, tracking the data, understanding how to use it, it is so many miles ahead of landlords.

"If flex operators have tens of thousands of people using their offices every day, they can convince the heads of [large companies like] GlaxoSmithKline PLC, AT&T Inc., [or] British Airways PLC that they know something about how people use workspaces and the needs of their workforces," he added.

WeWork's growth strategy includes the acquisition of significant real estate holdings in which it will operate its flex business. Ark, a subsidiary set up by WeWork's parent to manage and expand its real estate holdings, has raised an initial $2.9 billion in equity capital.

Oliver Knight, flexible office director and head of the Myo flex business at U.K. real estate investment trust Land Securities Group PLC, questioned the rights of flex operators to track occupier movements and collect data on individuals within a building due to a lack of clarity around the ownership of such data. Landsec owns 6 million square feet of office space across central London, some of which is leased to London Executive Offices Ltd., The Office Group and Regus Group Ltd., Knight said. Myo will open its first workspace in West London in May.