Nearly three years after a very public implosion that culminated in a failed IPO and the ousting of the company’s co-founder and CEO, WeWork is heading for profitability. The 14-year-old company still has brand power and is one of the largest coworking companies in the world by area and locations. But he struggles to make a profit. However, several months after the company went public via a SPAC merger, recent moves by WeWork’s new management are showing positive results for the New York-based company, which is betting on the popularity of more people. companies taking flexible space and members choosing to work from anywhere in the world.

Slow and steady

WeWork’s latest earnings call showed the company has made progress, with memberships up 33% from a year earlier to 658,000, surpassing pre-pandemic numbers. The company recorded a 37% increase in revenue over the previous year and an increase in occupancy rate to 72%, the same figure the company had posted at the end of 2019. Its total net loss was 635 million dollars, a decrease of 31% compared to the previous year. “As we enter the second half of the year, we remain confident in our proven ability to achieve our objectives of revenue growth, increased occupancy and continued pursuit of profitability,” said WeWork CEO Sandeep Mathrani.

The company is now focused on locking in more full-access memberships, allowing members to work from any WeWork location globally, and driving average revenue per office (currently $497) to $500, executives said on the call. This number, in particular, is a crucial part of what will help the company break even, said Ben Tannenbaum, CEO of Coworkintel. Tannenbaum’s company receives data from coworking businesses and aggregates it, creating benchmarks for industry players to compare their performance against one another. “Costs are going in the right direction,” he said of WeWork’s latest performance numbers. “The main thing that I was surprised to see is that the costs are coming down but the locations are holding up.”

WeWork has a footprint of approximately 44.5 million square feet globally across 777 locations, including nearly 20 million square feet in the United States. Major corporations are among WeWork’s clients, including Microsoft, Samsung, Pfizer, and Salesforce. In recent quarters, the company hasn’t added new space to its portfolio at the breakneck pace it once was or hoped to be. In 2019, WeWork was renting between 500,000 and 1 million square feet of new space each month, according to CB Insights. And at one point in 2018, WeWork was the largest office tenant in New York.

Although flex space accounts for less than 2% of office space nationwide, it is experiencing huge user demand and is another important part of the company’s strategy at home. ‘coming. “In the same way that brick-and-mortar has been disrupted by the speed and convenience of e-commerce, flex is capturing desktop demand with direct-to-consumer solutions,” Mathrani said on the earnings call. the company’s second quarter. “Sixty-nine percent of new member sales this quarter were filled in one month.” Mathrani went on to say that he has instructed his team to increase their all-access memberships capacity to 100,000 in order to increase their overall revenue, which he is “very optimistic” about. WeWork sees the Sunbelt and Silicon Valley markets as areas where it is looking to increase per-desk rates because those markets have higher occupancy rates, with view rates of 80% and above.

While WeWork originally marketed its locations as a place for startups and small businesses, the company’s strategy has evolved over the years to also focus on getting large enterprise customers. Current WeWork CEO Mathrani took over as CEO in February 2020, just months after co-founder and former CEO Adam Neumann was ousted from the company following its IPO. failed. A former CEO of commercial property firm GGP as well as the retail arm of Brookfield Property Partners, he outlined a five-year strategic plan to strengthen the business. The following month, COVID hit, leading to a sharp drop in occupancy, falling to a low of 46% in the fourth quarter of 2020, according to data from Coworkintel. Despite this, the company’s name and brand recognition seem higher than ever, helped by a recent television series based on the rise and fall of WeWork that focuses on Neumann and his wife, Rebekah, and a documentary released last year. While they’re not exactly flattering portraits of the brand and its former executive, it seems the adage “all press is good press” might be true in this case.

The road ahead

Coworking and flexible spaces have proven to be a sustainable and important component of the office ecosystem. Two years ago, the number of people working in coworking spaces was estimated at around 2.2 million. Looking ahead to 2025, that number is expected to more than triple. Much of the industry’s strength is in its model, which closely resembles hotels, said NYU clinical assistant professor Tim Savage, who teaches at the university’s Schack Institute of Real Estate. “Hotels have proven that such a model can succeed, and that’s basically what WeWork and other coworking brands are trying to do,” Savage said. “They lease the space for a longer term and fit it out, and then they lease it at a higher, amortized price than they’re paying for the option of short-term leases. This is at the heart of what the coworking model is.

Ever since Mathrani took over the reins in 2020, the company has predicted that it will start turning a profit by 2022, but it doesn’t look like that will happen. However, some industry analysts think that could happen as early as 2023. “Costs have come down, but inventories haven’t gone down, they’ve actually gone up since 2019,” Tannenbaum noted. He sees three options on WeWork’s path to profitability: cut costs, increase office prices, and/or increase occupancy. One of the ways the company is cutting costs is by suspending spending (outside of what the company has allocated to building space for leases that were signed before the pandemic) until next year. “We have levers to pull, but do not plan to sign any new large-scale deals that would require CapEx,” Mathrani said on the earnings call. “Everything we’re looking at now is close to 2025.”

WeWork recently rolled out two new partnerships that are part of its future: a space management app for its members created with software company Yardi called WeWork Workplace and a partnership with Upflex that offers members booking capabilities as well as access to Upflex’s portfolio of third-party party spaces. Additionally, a WeWork spokesperson said the company is working on more management agreements with its members, which has gained popularity in recent years in the coworking industry.

Profit-sharing agreements are similar to those practiced in the hotel industry between building owners and hotel operators. “This type of thing is pretty common in some areas of commercial real estate, especially on the retail side,” Savage said. “And that makes sense from an economic perspective. It solves what we call the principal/agent problem; it aligns tenant and landlord incentives. In a typical management agreement, a coworking brand doesn’t pay lease but instead agrees to share the revenue with the landlord. This is a way for landlords to fill space and reduce risk for coworking businesses by removing costly rental payments from their expenses. However, it there is a risk to the owner if a coworking business fails to attract new members and loses money.Owners with management agreements may also end up paying slightly higher mortgage costs, which has proven to be the case in the hospitality industry.

As long as WeWork remains focused on what made it successful, it should continue to be a powerful force in the industry. Mathrani has been a steady hand since taking over over two years ago and doesn’t seem to want to diversify the company outside of what it does best, like its former leader, Neumann, who recently admitted that the meteoric rise of his former company “went to his head.” Neumann is back in the spotlight after raising $350 million for a new apartment venture called “Flow.” raised eyebrows among many in the industry, but it also wasn’t a complete surprise.Earlier this year, Neumann-related entities acquired $1 billion worth of multi-family properties, mostly in the Sunbelt area “I think WeWork has grown very quickly, but also lost some business focus,” NYU’s Savage said, noting the company’s addition of residential buildings with WeLive and schools with WeGrow. equivalent milk to a lack of focus on core buildings.” While there are certainly some major hurdles for WeWork to overcome, the company appears to be focused on the right ways to overcome them.