When will WeWork start its long-expected downsizing? My Answer, it just did. Now, what does this tell us about the industry?
Having operated 4 large coworking locations in NYC, WeWork was my nemesis. Starting around 2012, I seriously began wondering where all that money was coming from. They seemed to have endless cash to build their far from high-end, soulless spaces, and a lot of us in the industry just could not figure it out. All was soon revealed when the curtain was ripped away by their attempted IPO and the world came to understand the amount of money that was piled up and burned to fuel…ego.
WeWork as promoted was a fantasy, but it does have an underlying hard asset reality. Since the attempted IPO in 2019, much time, money, and effort has been put into restructuring WeWork. Good work by good people. However, they were betting heavily on the rise of remote work as opposed to dealing with the sheer number of spaces that they (over)built, especially considering the devastating effects of Covid on the office space industry. Moreover, to add insult to injury, the country is now facing staggering inflation and the office space industry seems to be moving towards “quality” and shorter/smaller leases. WeWork’s focus on enterprise level clients was brilliant 7 years ago but with today’s rising inflation/interest rate environment, even those clients are struggling to maintain previous levels of operations.
As of June 30, 2022, WeWork’s consolidated real estate portfolio consisted of 641 locations across 33 countries. These locations supported approximately 749,000 desks and 528,000 physical memberships which equates to occupancy of 70%, and 72% when including committed memberships. Those are okay occupancy numbers but WeWork has still been losing lots of money and the economics of the world have dramatically changed for the worse since Q2.
Now, WeWork has announced the closing of 40 of their underperforming locations in an effort to stiffen up their balance sheet and let some oxygen back in the room for the other shared workspaces near the closures. Hopefully, this is WeWork moving toward focusing on their more successful locations and letting the coworking industry breathe a little. I see it, however, more as a “hunkering down” to ride out the soft economic year that is coming. Yes, I believe soft not disaster, I do not see the predicted severe recession coming. However, we are a nation/world that is struggling to figure out our new “normal” on all levels, and while this goes on economic growth will be anemic. No one knows for how long this will go on, but at some point, the entrepreneurs and enterprise clients will be back, and shared workspaces will ride the front of that new economic wave.