The trendy company that rents cool offices spaces has plans to incubate schools and co-living.
WeWork recently bought the former Manhattan flagship of Lord & Taylor, a troubled retailer, and is likely to buy more buildings using external capital. It has some $2bn in cash, with more soon to come from SoftBank. Unlike the old Regus, it has relatively little debt even after its $700m offering in April. Last month, Facebook asked WeWork for an entire building for several thousand workers.
WeWork does deserve credit for reimagining the conventional corporate office. It has spread design innovations from tech companies such as Google. A large common area with sofas and work desks, fruit-infused water and open lines of sight welcomes visitors to every location.
Each is manned by a concierge who gets to know “members” and curates events ranging from yoga classes to investor talks. The halls and stairways are deliberately made narrow as a way of encouraging people to interact. In lounges music is played loud enough to prevent eavesdropping. The firm uses a mixture of anthropological research, sensors and data analytics to hone and customize office designs.
At its location near Grand Central Station in midtown New York, a member working at an advertising startup says his old ad agency was so full of politics and corporate silos that he rarely socialized with colleagues. In his new co-working space he often enjoys beers or plays video games with people from other firms. Down the hall, a boss of an Icelandic yogurt firm says running instant focus groups on new flavors in the lounge speeds product development.
Research suggests that employees are happier in co-working environments like those run by WeWork. But the firm’s real genius is that it is also far cheaper for their employers. Property experts estimate that firms typically spend anywhere between $16,000 and $25,000 per employee on rent, security, technology and related office expenses.
Neumann insists they can get all of that from WeWork starting at $8,000 per worker. Efficient use of space is one reason. Ron Zappile of Colliers, a property-services firm, reckons that typical corporate offices use some 185 square feet per employee. WeWork members get by on 50 square feet.
WeWork has more than 250k members from a range of industries and expects to double revenues this year for the ninth straight year. Last year it made $886m in revenue, 93% of which came from memberships. Artie Minson, CFO, reckons the firm would need about 1.3m members to reach $10bn in revenues. The firm wants only a slice of the $2.5trn that firms spend worldwide on office-related services.
The firm is increasingly using revenue-sharing leases. This gives away some upside to landlords in good times, but it means the firm bears less risk during a downturn. Buying buildings with outside money is another hedge.
In addition to co-working space, the company would house WeGrow, a network of schools for young children that WeWork has designed, and WeLive, a “co-living” style of housing it is working on. The first such school, on the third floor of the firm’s New York headquarters, will start classes this autumn. Two residences are already open, one near Washington, DC, and the other on Wall Street. Probably it will work for WeWork.