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Flexible working is here to stay - with or without WeWork9th December 2019 Real Estate Commercial
Following on from our September blog post looking at the noticeable increase in managed workspace across Manchester and other major UK cities, the last few weeks have seen a seismic shift in the “flexible working” landscape with news of the troubles experienced by the UK’s largest co-working company, WeWork.
WeWork signals difficulties ahead
At the start of this year WeWork was leasing between 500,000 and 1 million square feet of new space in cities across the world every day. Parent company, We Company, was due to go public in September at a value of 47 billion dollars, with the company widely considered the flag bearer for flexible working across the world.
However, as a result of increasing doubts around the company’s business model, this notional value plummeted almost overnight, resulting in the removal of company founder Adam Neumann from his chief executive seat and the abandonment of plans to list.
What went wrong for WeWork?
There are conflicting opinions as to the reasons behind the Company’s drastic change of fortune. Some say it expanded too quickly, while others feel there is an obvious issue surrounding a business model which focuses on taking long leases of whole buildings (with the associated long term fixed costs) but granting tenants short flexible leases. Clearly in tough times there is the very real prospect that tenants may trade down whilst WeWork’s costs will remain fixed, or even increase.
Growth in flexible workspace
Notwithstanding the above, according to figures published by JLL, flexible workspace will account for 8.5% of total UK office stock by 2023. Demand for managed office space remains strong, with tenants appreciating the speed, flexibility and attractive rental concessions that the market provides. Ultimately it seems flexible working is here to stay, regardless of the fate of WeWork.
The question is, how will the sector develop and evolve giving regard to all the above?
The evolution of flexible working and the way it’s delivered
There are of course WeWork’s competitors to consider, some of whom feel that they have a more sustainable business model despite operating in the same sector. Take Tom Dugarin, UK general manager of WeWork rival Knotel, who commented that Knotel has differentiated itself by focusing on flexible offices for larger business, rather than co working spaces for start-ups and freelancers, thereby relying on a less transient revenue stream.
“We’ve always focused on this product, and if anything, they [Wework] have pivoted their business more towards ours, which is the larger enterprise business – it’s always been our bread and butter”, he said.
However, there is a growing feeling that WeWork’s problems stem from the very ethos on which the company was built, and is indicative of a trend which was developing even before news of WeWork’s difficulties. Fundamentally, the company doesn’t own its product, and is, at its core, a “middle man”, leasing rather than buying the space from which it operates. Clearly there is nothing stopping landlords from operating their own flexible offices, thereby cutting out this middle man.
The challenge is how they will manage such arrangements in practice.
CBRE’s Hana leads the way with a hybrid approach
Perhaps a hybrid approach may represent the future. Some say we can expect to see arrangements between landlords and operators becoming more common, with the possibility of partnerships being formed.
By way of example, CBRE’s co-working brand Hana launched in late 2018, offering a range of partnership solutions for real estate investors. Hana partners with owners to develop and operate flexible workspaces allowing them to retain control of their buildings whilst benefitting from the advantages of a flexible working offering.
This wind of change is not confined to the Capital - it has recently been announced that Hana is set to launch in Manchester, with rumours that they are due to sign up to three floors of newly refurbished office space in Windmill Green.
Will the fate of WeWork impact the market?
Ultimately, regardless of the fate of WeWork this is not likely to have a catastrophic impact on the UK Real Estate market. It feels like the flexible working sector will continue to flourish, albeit potentially under a different guise. As this blog post touches upon, others would no doubt fill any “WeWork” void, whether it be landlords, competitors, other third party operators or partnerships between the two.
Keep an eye out for future blog posts, where we will keep you up to date on further developments in what is a fast moving and evolving market.
In the meantime, our Commercial Real Estate team has the knowledge and expertise to assist with a full range of property requirements. Please do not hesitate to get in touch should you require any such assistance.