top of page

Putting Businesses Before Real Estate: Lessons Learned from the Rise and Fall of WeWork

From its humble beginnings as Green Desk in Brooklyn, New York, to the inaugural WeWork spot in Soho back in 2011, and eventually expanding to lease 43.9 million square feet of office space worldwide, the trajectory of WeWork offers essential lessons for businesses aiming for sustainable growth and lasting success.


The Rise and Fall


WeWork's journey began with a remarkable surge in popularity, as its shared workspace concept attracted both startups and established firms with promises of innovative, high-quality, flexible, and community-oriented environments. These broader trends underscored the significance of factors like quality, location, enjoyment, and community in shaping modern work life. Despite its impactful evolution, which continues to shape our society, WeWork's story took a turn on November 6, 2023, when the once highly valued startup, valued at $47 billion USD, filed for bankruptcy in New Jersey, USA (source: BBC, 16/11/2023).


While the pandemic played a significant role in WeWork's downfall, the primary reasons lie in its substantial initial capital investments and the nature of its real estate holdings. To amass a global footprint of nearly 44 million square feet, the company entered into long-term leases at prime market rates. WeWork's revenue model relied on collecting fees from its tenants while offering flexible lease terms to adapt to changing business demands and anticipate client growth.


However, as the pandemic prompted a shift towards remote work, many co-working members and traditional tenants no longer required full-time office spaces. WeWork, with its flexible lease structure, suffered immediate and insurmountable losses, leading to its collapse.


These societal shifts also affected traditional commercial landlords, who faced challenges meeting financing obligations amid lower occupancy rates and rising interest rates. It's vital to acknowledge the significant risks and costs landlords incur in delivering quality office spaces, which ultimately benefit corporations, local businesses, and communities. To ensure project success and meet financial obligations, stable, long-term leases with reliable tenants become imperative.


Lessons Learned


Despite WeWork's demise, the coworking industry's potential remains strong. Organizations increasingly seek flexible work arrangements, emphasizing workplace satisfaction, retention, and a balanced corporate culture. The pandemic demonstrated the feasibility of hybrid and remote work models, prompting companies worldwide to normalize these practices. As businesses adapt, zoning regulations and public policies may evolve to accommodate more flexible office developments.


The rigidity of traditional lease structures contributed to WeWork's downfall. Had WeWork adopted a percentage rent model or owned its real estate, it might have mitigated risks and maintained financial stability. The key lesson is to approach real estate negotiations collaboratively, ensuring mutual benefits for landlords and tenants. Transparent discussions about challenges can lead to balanced agreements, fostering financial stability and profitability for all parties involved.


These lessons extend beyond real estate to various sectors like film, television, logistics, and retail. By revaluating successful business models and embracing collaborative approaches, organizations can secure mutual success and navigate uncertainties effectively.


Conclusion


Prioritizing relationships is paramount for success. Landlords benefit from stable tenancies, while tenants rely on long-term relationships to meet their evolving business needs. WeWork's rise and fall offer valuable insights for the commercial real estate industry. By learning from past mistakes and adopting forward-thinking, collaborative, and flexible strategies, organizations can thrive amidst uncertainty and pave the way for a prosperous future.


Comments


bottom of page