WeWork is slashing prices in order to hold on to its customers, highlighting the challenging conditions faced by co-working companies whose office tenants have been kept at home for months by coronavirus.
The lossmaking property company backed by Japan’s SoftBank is offering discounts to existing clients around the world, in some cases halving the rent they owe for the next few months.
WeWork has been keen to project strength and stability since its aborted attempt at a public listing sent its valuation tumbling from $47bn in January 2019. By March 31, as the pandemic closed offices worldwide, the Japanese group had cut its valuation of WeWork to just $2.9bn.
The company is under new management and recently ran adverts in the New York Times stating that, with at least $3bn of liquidity as of June 30, it was “here to stay”.
It is discounting so-called memberships case by case, taking into account the size of the customer and how long they have committed to remain in a WeWork building. But the move highlights the difficulties facing the entire co-working sector.
WeWork and IWG, which bills itself as the world’s largest provider of flexible workspaces, do not own their office buildings but instead rent space on long leases, subdivide it and then rent out units on shorter leases to tenants.
That has left them threatened by a downturn in which tenants have been restricted from being in offices and are questioning their use of space. WeWork disclosed in August that its sales dropped by about a fifth between the first and second quarters of this year as it lost 12 per cent of its members.
The operators are also battling with their own landlords for discounts. WeWork has enlisted property company Knight Frank to advise on the restructuring of its UK leases as part of its global review as it retrenches.
IWG has taken a more aggressive stance, placing its largest subsidiary — the Jersey-listed Regus — into insolvency in an effort to persuade landlords to agree to concessions. Regus provides rent guarantees on about 500 properties, covering almost £800m of lease agreements.
In the US, it has put between 90-100 centres into Chapter 11 bankruptcy, amounting to about 10 per cent of its entire portfolio in the country.
Both IWG and WeWork are bullish on the future, noting that co-working tends to thrive in recessions, as companies gravitate towards more flexible lease agreements.
But such extreme measures reflect the pain caused by coronavirus. “The problem for co-working spaces is that there’s no one really in them. There’s no vibe, it’s soulless,” said Chris Lewis, a director at Devono Cresa, which advises office tenants.
Having until recently been one of the main sources of demand for new office space, flexible-working companies are being more cautious. In central London this year, they have taken just 260,000 square feet of new space, about a tenth of last year’s total, according to research by property company Cushman & Wakefield.
On Wednesday the group said it would change its name back to WeWork from the We Company, the brand co-founder Adam Neumann chose to reflect its ambitions in areas from co-living to education.
New management has since sold off activities it deemed non-core and Mr Neumann has returned the $5.9m the company paid him for the use of the trademark “We”.