WeWork continues to expand, though critics remain skeptical
WeWork, a startup that offers rentable space to companies and businesses, is now the largest office tenant in New York City and has plans to expand further. Though it is valued at $20 billion and is growing quickly, critics are skeptical about how the company is turning a profit.
WeWork currently opens at least 20 new locations per month and has become a well-known and trendy company. The spaces they rent out are primarily offices, but they have been starting to branch out into other areas, including fully furnished living spaces.
The company’s main focus is for their spaces to have a sense of community for their members. WeWork has revolutionized the concept of co-working offices to be an upbeat and more collaborative kind of workplace.
The company opened its first location in New York City in 2010. Since then, WeWork has expanded to being able to host 268,000 members at 287 sites. WeWork’s occupancy rate was around 84 percent in the first half of the year, which is up from 78 percent during 2017.
WeWork, which is headquartered in the United States, has gotten a reported $8.1 billion in venture capital by fixing up and leasing out building space as shared offices. Japanese telecommunications giant Softbank Group is a major investor in the company.
WeWork reported $764 million in revenue for first half of this year, which is more than double the revenue of that same period in 2017, however even as membership and revenue increase, the company’s costs for upkeeping their spaces continue to exceed their profits.
The company had a $723 million net loss in the first six months of 2018, in addition to $934 million in losses last year. These losses resulted in S&P Global Ratings considering WeWork a risky investment in April due to its hefty investments.
Though WeWork does have its problems, S&P said the company has “ample liquidity, a strong occupancy rate, and the chance to set its own terms with landlords as it becomes more dominant in size and scale.”
Additionally, WeWork claims that as they increase the number of their buildings, their building costs continue to decrease and they continue to increase the amount of revenue they receive from new tenants.
In addition, WeWork reported that its European flagship building in London turned a profit in 2017, which the company sees as an indication that its investments will soon prove successful. However, separate filings for WeWork’s overall business in the United Kingdom reveal that its losses have almost tripled, making critics wonder whether the earnings from rent can ever exceed the costs it has.
The company has $4.21 billion in U.K. lease commitments over the next 20 years, which could be problematic if the U.K. exits the European Union in 2019.
The U.K.’s exit may cause a downturn in the property market. Besides cutting into WeWork’s real estate investment there, this event could potentially cause businesses to leave the U.K., leading to reduced demand for office space. This would ultimately leave WeWork with fewer members.
WeWork has previously had a brand image as a place for freelancers and budding entrepreneurs to gather and co-work, however, major companies, including Sprint and Microsoft, are housing their employees in WeWork locations, which has reworked people’s views of the company. The company believes that it has not veered from their roots.
In their mission statement, WeWork claims to be “a place you join as an individual, ‘me,’ but where you become part of a greater ‘we.’ A place where we’re redefining success measured by personal fulfillment, not just the bottom line.” This idea appeals to millennials and startups and also coincides with the growing number of Americans who are freelancing or working remotely.
Their offerings to members include free Wi-Fi, business-class printers and free refreshments. WeWork members also have the option to attend events with their fellow co-office-workers, which are both for social and professional purposes.
WeWork is working on various initiatives including designing work spaces for other companies. Additionally, they plan to open a school called WeGrow in New York City next fall.
Through an initiative titled WeMRKT, WeWork now gives entrepreneurs a marketplace to showcase their products, selling items made mostly by and for WeWork members. The company focuses on promoting sustainability as well as starting an initiative this past July to be meat-free.