After entering bankruptcy protection late last year, WeWork might have been hoping to leave its money woes behind this year. That ambition has been made harder by recent financial results, which indicate sluggish demand for its UK offices.
The UK arm of the coworking giant, WeWork International, posted a loss of £110 million in 2022, according to figures published by Companies House. It also owes £731m to parent company, WeWork US.
The drop in profits is considerably less than the £153 million loss it made the previous year. But office experts are warning that the potential collapse of the provider could create chaos for UK customers in an already competitive commercial property market.
WeWork’s profit paradox
WeWork’s financial difficulties have been well reported since the company’s failed IPO back in 2019. The brand expanded at breakneck speed during its early growth stages, racking up years of losses that saw it forced to file for Chapter 11 in the US last November.
This has combined with a slowdown in demand for long-term office rentals, triggered by the pandemic and worsened by the rise in hybrid and remote working policies.
WeWork US’ bankruptcy proceedings do not impact WeWork International. But the business has warned that the group’s wider trading position is a growing concern for its extensive UK portfolio.
The firm said that “the recent macroeconomic environment has caused higher member churn and weaker demand than contemplated under the group’s business plan.”
Will Keanner is founder of HEWN, the UK’s leading specialist flexible workspace agency. Kenner describes his concern at the recent news regarding WeWork International’s profit losses.
“The impact of Chapter 11 in the US will undoubtedly impact the UK business who owe the brand some £731m,” he stresses. “Something has got to give.”
Londoners most at risk
WeWork’s strategy has so far been an attempt to consolidate their position in the market. By closing poor performing sites, and moving members to more profitable workspaces, they intend to negotiate lease payments with landlords and reduce their overheads.
In the UK, this will have the biggest impact on firms based in London coworking spaces. The capital is one of WeWork’s biggest markets globally, accounting for 89% of its UK offices.
Discussing the impact a WeWork collapse could have, Natasha Guerra, CEO of Runway East says it could create short-term chaos as companies flock to alternative neighbouring providers.
“It could also create some chaos for customers – there’s simply not that much flex space free in London to accommodate all WeWork members easily.”
Nonetheless, the London coworking market has boomed in the past year, with more options than ever cropping up to service startups and small businesses.
“WeWork’s collapse, if it were to happen, would create opportunity for UK flex operators who would look to take over their better buildings,” Guerra adds.
Can WeWork cater to the new workplace?
There are still signs that WeWork closed 2023 with a stronger performance. On-demand spaces, a type of flexible payment option which offers “drop-in” workspaces for members, were up 33% in November from a year earlier in the capital.
The trend is likely a result of more companies embracing flexible working for 2024. A recent survey by Startups found that 66% of SMEs will adopt a flexible work model this year.
Still, the increase may not be enough to take WeWork out of the red – particularly now that its partnerships with landlords have become bruised.
In October, the firm briefly moved its occupiers at The Bower, in London’s Old Street to alternative accommodation before managing to strike a last-minute deal with landlord Helical.
Many members have stuck with the coworker throughout its troubles. Should more key properties close, they will likely get cold feet.
“WeWork is a strong brand – which has been its liferaft, and there are customers who are loyal to it. But how loyal will businesses be when they cannot rely on their spaces still being available to them?” Kinnear probes.
