Co-working spaces, the emerging flexible and cheaper ‘office’ alternative, had fallen into a rut during the pandemic, but in recent months has become popular real estate once again. It was therefore a shocker to see the larger international pioneer in the game, WeWork, close to filing for bankruptcy in the US.
WeWork, which once boasted of 44 million square feet with over 500,000 members in 40 countries, began slipping when its IPO in 2019 failed. From a peak valuation of $47 billion, it fell to $10 billion as investors called to question its business model and its ability to turn in a profit. Alfred Neumann, one of WeWork’s co-founder, was forced to resign as CEO.
Thereafter too, there has been no turnaround for the SoftBank-backed company. Long-term debt had piled up to $2.9 billion by June this year and over $13 billion in long-term leases is weighing it down when borrowing costs are going up. WeWork may file for Chapter 11 bankruptcy as early as next week. Meanwhile, Karan Virwani, chief of WeWork India, has cautioned the local arm will remain unaffected.
Its business model of signing expensive long-term leases, and growth at any cost, seems to be its undoing. Opening new centers without proper due diligence created unsustainable assets that kept piling up debt.
Another big shutdown last year in August was the trendy ‘women only’ social club and space sharing company ‘The Wing’. Launched in 2016 in New York as an ode to women’s empowerment, it caught the investors’ fancy. But it couldn’t live up to its hype. Employee discontent took its toll, and so did exiting membership during the pandemic. Ultimately, it promised too much – being more than just a co-working space for women, a culture club, events, and many more things – and it did not deliver.
Post-pandemic boom
But these are specific company failures. In fact, co-working spaces, despite the pandemic setbacks when workers boarded themselves up at home, have made a comeback riding on those wanting to rid themselves of the Covid blues. For millions of office staffers, working remotely at home for months became claustrophobic; and they yearned to be part of the office bustle once again. On the other hand, companies did away with expensive office space and asked staffers to work remotely. This was a huge opportunity.
The trend is clear: worldwide, from just 160 co-working spaces in 2008, the number has grown to 35,000 this year, as per office tracker flexas.com. The same Flex Index said in May this year, 28% of the 4,000 US companies tracked were fully flexible, either with no offices or ‘hybrid’ allowing employees to decide on working in person or remotely.
In India, the penetration of the co-working segment is still in its infancy, accounting for about 3% of the total office space.
However, there is rapid growth and theaddress.com estimates that the co-working stock has almost doubled to 50 million sq feet by 2023 (7.5 lakh seats) from the pre-Covid figure of 30 mn sq ft in 2019 (4.7 lakh seats).
Changing work culture
The impact of the pandemic and work from home (WFH) has changed office culture. A survey by HR solutions company Aon showed while the number of firms that worked from home dropped from 38% in January 2022, there were still 9% of workplaces that held on to a work-from-home regime. This included companies such as Meta, Brex and Upwork. However, those companies that ordered a return to physical office work, faced an attrition rate of up to 30% showing the growing popularity of the ‘flexi’ work culture.
Significantly, the number of firms that worked in the hybrid mode went up to 70% by August 2022, compared to just 47% earlier in January 2022. This seems to be the way forward.
Co-working is a good business model. For landlords, surplus office space can be easily converted and leased to a franchise or chain, that will fetch higher-than-traditional returns. For those investing in shared office areas, it provides low cost entry and is easily scalable. ‘Awfus’, founded in 2015 by Anil Ramani, has 150 centers and is all set for an IPO next year to raise $125 million.
Start-ups, not wanting to spend high on real estate, are the main patrons. But the trend is for regular employees too, who are not part of large office teams, co-working space is a great emerging option in the zone between the straightjacketed atmosphere of the traditional office, and the loneliness of WFH. In large cities, where commutes can be as long as two hours, cycling to work 15 minutes away is a big draw. The new hybrid work culture has spawned a spectrum of niche and trendy co-working real estate. The ‘American Underground’ that is popular in the US, for instance, offers besides regular office amenities, social networking options like Bingo nights, happy hours and a snack and coffee bar for about $150 a seat for a month.
For the white collar worker, the traditional office will always be there, but it will increasingly cede space to both WFH and now increasingly co-sharing spaces. And why not? A diversifying work culture should mean more options.