The spectacular fall of WeWork poses questions about the future of the London office market - and property plans for charities.
WeWork opened its first co-working spaces in London five years ago. It offered a fashionably-bare, open-plan spaces with flexible conferencing facilities, super-fast internet, free coffee and even bars. The model worked: by last month WeWork had opened nearly 50 co-working spaces across London. It had become the City of London’s largest landord.
WeWork’s business model was designed to take advantage of the new working patterns that have been changing employment and property logistics for the past ten years. Flexible working, small tech start-ups and the increasing use of freelancers have all contributed to the idea that large permanent offices are a thing of the past.
Dozens of companies set up flexible working spaces in buildings across London, taking on long-term leases for whole buildings and then sub-letting them on a short-term bases - sometimes offering individual desks for a weekly rate. The idea of co-working as a cheap solution faded - as ‘desk prices’ increased.
Co-working as a solution for charities
Many charities have ventured into the flexible office space market. For small organisations wanting a foothold in central locations, it can seem the best option.
Models vary: many non-profits have set up their head offices in less expesnvie locations and lease small spaces from commercial providers in Central London. Some rent just one or two desks, while others lease whole floors in large developments - often in buildings that are due for demolition within five years. Some charities are successfully generating income by leasing desk spaces to other charities.
The results can be... mixed. Well managed, co-working can be a great solution for charities, particularly over the short term.
A key factor is the quality of the facilities management on offer. Incomplete refurbs, non-existent maintenance, dubious safety management and lowest-common-denomiator employment practices can all be found at the wilder end of the market. In addition, commercial companies often lack any interest in the ethos and priorities of voluntary sector organisations.
Events over the past six weeks have changed the wider narrative about the inexorable rise of co-working: WeWork imploded.
With co-working spaces around the globe, WeWork decided to go public, valuing itself at a staggering $47billion. But investors were not impressed by the gigantic valuation: they saw the flaw in a business model that is all about short-term lets with little long-term security: WeWork’s tenants can leave whenever they want.
WeWork’s floatation was a spectacular failure. The company eventually had to agree a rescue deal with a Japanese investor, SoftBank, and its valuation was cut by 80%.
The debacle has raised questions about co-working and the wider serviced office market - and in turn, about London office prices, which some say, have been artificially boosted by the co-working phenomenon.
Many landlords have a direct stake in the WeWork drama: the Daily Telegraph (paywall) reported that WeWork’s British subsidiary has more than £3.2bn in lease obligations, the majority in London. Any further failure would have a signifiant knock-on effect.
The UK property market is already overshadowed by Brexit uncertainty - with predictions ranging from a slump across both residential and office prices, to a 'Brexit boom' generated by foreign buyers taking advantage of the falling Pound.
Worst case, landlords could be left with empty, over-priced buildings as the co-working gold-rush fades. Some commentators suggest that London office prices will see a downturn - good news for charities seeking office space; bad news for investors in the property market.
For many charities grappling with high rents, the more 'traditional' flexible working model may be best. Combining working from home with travelling to a well-managed, permanent office can offer the ideal combination of well managed offices, reduced space requirements and greater employee satisfaction.