WeWork offers office space to individuals and companies with minimal commitments in terms of time and space. Potential customers / tenants of WeWork are typically startups looking for working space who want to avoid long-term leases, but also want the flexibility to expand if their company continues to grow. Established companies also utilize WeWork’s space when they want a footprint in a particular city, but don’t necessarily need a full office space. Boston, for instance, has two locations at South Station and Fort Point.
WeWork makes money with arbitrage, essentially. The company leases space from office buildings within popular cities for white collar workers and then rents out that space on a monthly basis for more than it pays. WeWork was recently (June 2015) valued at $10 billion after receiving an investment from Fidelity Management. When looking for additional space, WeWork targets newly built commercial properties as an anchor tenant. From a property manager’s perspective, WeWork is an attractive customer because they not only commit to space prior to the completion of construction, but as WeWork’s presence grows, they are also likely to expand further within your office space. This was the case in WeWork’s Boston office, where it started with just a single floor of office space and now has at least three.
In addition to providing working space, the company promotes its community appeal. The company hosts industry events, encourages tenants to mingle with other individuals/startup members at WeWork happy hours, provides games like ping pong tables, and even offers free beer in common areas. While I don’t believe that these are reasons a typical WeWork tenant signs up, they may be reasons to renew their memberships.
WeWork spaces are typically broken down into three categories:
- Dedicated Offices
WeWork’s customers choose dedicated offices at their locations when they want maximum privacy while taking advantage of WeWork’s resources.
- Dedicated Desks
Customer choose their dedicated desk option when they expect to return to WeWork frequently and would like to have a space that they can leave items like computer monitors, filing cabinets, etc. This option incorporates more of the community feel than the dedicated office option.
- Open Office Space
The Open Office Space option is ideal for individuals with small budgets or those who visit WeWork spaces infrequently. I see this option as a significant step up from working in a coffee shop or library.
In order for WeWork to continue to win, you have to believe that the company is immune to the setbacks that commercial property developers/managers face. When the economy is in a downturn, commercial property tenants are difficult to come by, which leads to vacant spaces or significant price drops. Some argue that WeWork’s business is also dependent on the high degree of startup investing from angels and venture capitalists over the past five. A downturn in either of these categories could result in significant revenue hit. One argument to suggest that the company could weather difficult times is the fact that they don’t own their property. In a situation where tenants are difficult to come by, they could presumably scale down in terms of the space they lease.
Short video on WeWork:
Wall Street Journal Article on valuation