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WeWork didn't invent the shared office, but it did make co-working cool.
Still, the company could never quite turn all its buzz into sustainable profit. On November 6, after months of speculation, the company filed for Chapter 11 bankruptcy.
That's not to say the demand for co-working spaces and flexible offices isn't there: Hybrid work has taken off since the pandemic. "Most flex providers are having banner years," says Industrious CEO and co-founder Jamie Hodari. "The great irony is obviously that WeWork's bankruptcy happens in juxtaposition to that."
New York City-based co-working company Industrious has close to 200 locations around the world, and revenue has grown nearly 40 percent in 2023. It has even taken over a handful of WeWork spaces and rebranded them as Industrious. Another New York-based WeWork competitor, Convene, which has raised more than $500 million in venture funding to date, reportedly has an 80 percent occupancy rate on its coworking spaces and has been building up its corporate meetings-and-events business.
Meanwhile in a statement posted the day of the filing, WeWork said it will seek to exit or renegotiate most of the leases it struck with commercial landlords, to "position the company for operational and financial success." While WeWork tries to balance its books, competitors say they're confident they've hit on more sustainable business models.
When news of WeWork's impending bankruptcy began swirling, San Francisco-based Codi, an Andreesen Horowitz-backed WeWork competitor, launched what it calls a WeWork Relief Fund, offering up to $2,500 off the first month's rent for new members who switch over from WeWork. (The company declined to reveal its annual revenue.)
Codi founder Christelle Rohaut says her company doesn't provide shared amenities or drop-in common spaces -- two hallmarks of many coworking spaces -- but that she sees increasing demand for her company's turnkey offices with flexible lease terms ranging from a few months to five years. She estimates 80 to 90 percent of the companies signing up for Codi now were in WeWorks before.
She believes the co-working model is "fundamentally flawed" because it's too difficult to balance long-term lease commitments to landlords with the ever-changing needs of occupants and the difficulty shared spaces pose for startups trying to build their own company's culture. Instead, Codi works with landlords whose spaces would normally sit empty while they wait for a long-term tenant and creates a recurring revenue stream for the landlords without the need for a multi-year lease.
WeWork's troubles also offer an opportunity for hyper-local coworking spaces, such as the Coven, which has locations in Minneapolis and St. Paul and focuses on creating an inclusive environment. "The Coven is welcoming new members from WeWork, reflecting both the strength of the co-working model and our focus on designing workspaces centered on belonging and community," says co-founder Liz Giel, who adds that revenue is up 11 percent year over year. For example, the Coven, which has raised $3.2 million in funding, offers career-development resources for members, and since its 2018 launch, has fostered equity by offering free memberships to members of the local community through an application process.
About three-fourths of WeWork's revenue goes to paying rent on leases for office space, which is then carved up and sublet to businesses that work out of its spaces, according to the Financial Times.
Industrious, in contrast, for the most part strikes partnership agreements with landlords to operate co-working spaces and share the proceeds. Hodari, who co-founded the company in 2012, calls the lease-based model "very unforgiving." In addition to being liabilities on a company's balance sheet, the leases are fixed costs that make it harder to contend with fluctuating demand.
Some commercial landlords have even begun creating co-working spaces themselves. Tishman Speyer recently took over a WeWork space in Long Island City, Queens, and rebranded it as Studio by Tishman Speyer, the chain of co-working spaces the real estate company introduced in 2018.
Another co-working company that operates through management agreements with landlords, the Malin, launched in 2021, and today has three locations in New York. It plans to expand to Nashville and Austin.
Co-founder and CEO Ciaran McGugain says the Malin sets itself apart from co-working giants such as WeWork by offering "really beautiful environments" and personalized service. The typical space is smaller than most co-working spaces, serving 200 to 300 members at most, in a mix of drop-in space, dedicated desks, and private offices.
A day pass at the Malin in Williamsburg, Brooklyn, is $75, while WeWork day passes start at $29. But the prices don't seem to be deterring new users. The Malin's revenue has increased by more than 100 percent in the past 12 months, and the company continues to see month-over-month growth.
Location matters, too: McGugain says he's been "very selective" about the neighborhoods he operates in, anticipating that many members want to live within a 15-minute walk of their office.
For Industrious, Hodari sees growth in vibrant downtowns and neighborhoods--the kinds of places where people want to hang out after work. "One of the big things with flex is people vote with their feet," says Hodari. "You have to have people in the surrounding area that really want to work in that particular location."
WeWork famously became a cautionary tale of a startup that grew too big, and took on too much funding, too fast. In 2019, it ballooned to a valuation of $47 billion, but then pulled a planned IPO amid signs of financial mismanagement. The company eventually went public in 2021, but observers say it could never recover from its rapid expansion when it was burning through venture capital.
Now, many operators say they hope to be more intentional as they expand. McGugain says the Malin raised a small round of seed and Series A funding (a little less than $6 million, according to PitchBook), but has avoided taking on large sums of financing and debt. Industrious, which has raised over $700 million in funding from sources including real estate giants CBRE and Brookfield Properties, is looking for compound growth of about 30 percent per year, Hodari says -- a stark contrast to WeWork, which for a while was trying to double in size each year.
Even some of WeWork's competitors have expressed optimism that a scaled-back version of the company could be sustainable in the future, if the bankruptcy proceedings result in a more manageable real estate portfolio. Hidari believes the bankruptcy will mark an inflection point, as providing flexible office space becomes a mature industry and a service that appeals to many small businesses.
"This is a really good moment for flex, and you're seeing a lot of rising demand," he says. "It was only in the last two or three years that flex providers were able to get to a level of quality where they could say to customers, 'Your employees are going to have a better experience here than when you do it yourself.'"
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