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WeWork’s evolution could keep disrupting office markets

Jun 7, 2017

breather-181290.jpgWeWork has been disrupting the office sector for the last seven years. Now, the company is moving to take on industry giants like JLL and CBRE through a new business that directly targets large, corporate clients. The company also launched its own real estate investment arm and has plans to drastically increase its real estate footprint this year. 

As WeWork expands to directly compete with traditional real estate companies, its clear the co-working company is not slowing down in its fight to keep disrupting office markets.

WeWork positions itself to take on major industry players

WeWork is already a major force in office markets globally. The unicorn is valued at over $17B and manages more than 135 locations in 14 countries, but so far the company has largely attracted freelancers and small businesses looking for flexible communal office space with short-term commitments. That is currently in the process of changing, and in April the Wall Street Journal reported that WeWork launched a new business to evolve its model to tap into large corporate clients.

Named Onsite Solutions, WeWork’s new arm creates personalized office centers for companies with hundreds or thousands of employees. Onsite Solutions aims to design, develop and manage offices for some of the world’s largest companies, and WeWork executives told the WSJ they are confident they can provide office space at less cost while generating better results than traditional real estate companies. Experts said these centers are likely to look like typical WeWork facilities, which focus on open office designs to foster creativity and collaboration. 

The move signals a transition in how WeWork fits into the office market. Historically, traditional office giants like JLL and CBRE have not considered WeWork a direct competitor, but this new business changes that dynamic as WeWork starts to compete for the same corporate clients traditional firms rely on. 

The corporate model is already working

In a landmark deal for the company, this April WeWork signed IBM to occupy the entirety of one of its buildings. IBM agreed to lease 70,000 square feet of Manhattan’s 88 University Place, marking the first deal in New York City where an entire WeWork building will be occupied by a single company. IBM plans to move about 600 employees into the space, making it essentially an IBM office managed by WeWork. In a similar deal, this February Amazon announced plans to take up two of three available floors in a WeWork building in Boston’s Back Bay neighborhood.

WeWork said it has five buildings around the world occupied by either one or two companies, and it is clearly intent on growing that number. While small businesses currently make up most of WeWork’s tenants, the company said large corporations total around 20% of its membership base. The company’s new business model, coupled with these recent deals, show there is a corporate appetite for WeWork’s offerings, suggesting we can expect to see more deals like this in the future.

WeWork launches property investment arm

In another move to evolve the business, WeWork recently partnered with private equity firm Rhone Group to create its own investment arm. The fund is called WeWork Property Investors, and it has already raised hundreds of millions of dollars to buy some of the buildings WeWork currently leases, according to The Real Deal.

The move represents another shift in WeWork’s business as the company finds new ways to generate profit. Specifically, WeWork wants to own its own buildings so that it can benefit from property appreciation, which it says it creates as a tenant. While it’s too early to say whether the fund will be successful, a Savills Studley investment sales broker told The Real Deal the fund’s success depends on whether investors trust WeWork’s credit, and also how comfortable investors are putting money into properties where WeWork occupies the majority of the space.

WeWork’s evolution could further disrupt office markets 

In addition to Onsite Solutions and WeWork Property Investors, WeWork executives told Bisnow the company aims to double its real estate footprint over the course of 2017 and triple its number of real estate transactions. The company hopes to fuel growth by expanding into vibrant locations near bars, restaurants and health clubs.

When WeWork announced plans to launch Onsite Solutions, executives at traditional real estate companies told the Wall Street Journal they did not consider the co-working company a threat. “One vibe doesn’t fit all,” Savills Studley senior managing director Laura Whelan said, and executives said traditional real estate firms offer a wider range of workplace designs than WeWork does. 

While WeWork’s hip, coffee and beer-infused workplaces may not appeal to everyone, the company has been a success since its inception, and IBM and Amazon’s recent deals suggest there is an appetite among corporate clients for WeWork’s new business. From the company’s move to compete with industry giants to its new property investment fund, it’s clear that WeWork plans to keep disrupting office markets.

Next: How brokers can use coworking spaces to build new relationships 

Erik Dolan-Del Vecchio

Written by Erik Dolan-Del Vecchio

Erik writes about the people, the deals and the trends that move the commercial real estate industry.

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