[WeWork’s Powered By We Product Is Central To 2018 Growth Strategy
Luther Lazaro
With $6.5B in equity funding, WeWork is expanding aggressively at home and abroad and pursuing diverse investments that have raised eyebrows. But its real-estate-as-a-service offering and trove of data on optimal office design could make the company's value prop far more than a marketing ploy.
Companies traded in public markets that follow the same business model trade at much lower sales multiples than WeWork. Detractors say WeWork has earned its valuation by putting hipster touches on formerly drab spaces and positioning itself as a startup incubator, then charging sky-high rent.
The company is leveraging this data not only to improve its own locations, but also to become an outsourced facilities manager, at a time when big enterprises are trying to shed real estate management from their portfolios. WeWork has already secured IBM and Verizon for its Powered by We offices in Dock 72, a high-profile commercial property in Brooklyn.
WeWork is also pursuing new lease agreements that could help it shed some of its biggest risks, and purchasing high-profile properties outright, giving it much more visibility and real assets. However, recently the company has come under fire for renting properties owned by CEO Adam Neumann, prompting concerns about conflicts of interest.
With a huge funding jump (largely driven by SoftBank investments) last year, WeWork has been able to significantly scale up square footage, which has in turn provided capacity for correspondent membership growth.
Notably, the company can add space so quickly due to its construction chops and operational efficiency. After a location has been scouted and vetted, and a lease or co-management agreement is in place, the company can accept tenants in as few as 4 months, and on average does so within 9 months.
Over the course of a decade-long lease, there may be phases when small businesses and entrepreneurs find WeWork to be unaffordable, or competitors with lower rent obligations are able to provide a similar offering for less money to the customer.
Before being acquired by WeWork, Case was a technology consultancy for the architecture industry. Its team specializes in building information modeling (BIM), in which buildings are scanned and shown in 3D to provide insight into the time and cost of projects. WeWork acquired the company in August 2015.
In June 2017, WeWork acquired FieldLens. FieldLens offers a platform for communication between stakeholders in the construction of buildings. Its technology allows project managers, foremen, architects, owners, and supers to manage construction sites in real time on their phones, documenting conversations and tracking and assigning issues.
Fano argues the BIM process has increased space efficiency between 15 and 20% while saving 10% of building cost. After all, just one extra desk can add up to $80,000 in sales over 10 years, according to Forbes.
The below graphic shows a BIM plan script mapping frames and assemblies. Notably, WeWork tests different layouts and office sizes, using information from existing locations to predict where members will gather in a new location, how many phones should be installed, etc.
Corporations across the globe are searching for ways to lower their total square footage to cut costs. In addition, a rule mandated by the US Financial Accounting Standards Board set to go into effect in January 2019 requires public companies to add real estate lease obligations as a liability to their books.
The rule is likely to make companies with large leased footprints appear significantly more leveraged than their reporting currently reflects, and thus will spur companies to lower their real estate footprints.
Sensors and other measurement tools like facial recognition software let WeWork track how its office space is used, down to data as granular as how members adjust their desks and what parts of the office see the highest foot traffic. Eventually, these tools might even be able to track how focused members are in meetings.
Armed with heaps of capital from its $6.5B in equity funding, WeWork is rapidly expanding across the world, adding new locations and amenities in a bid to scale its membership count and diversify its brand.
The company has added amenities and service offerings to its core customers (individuals and companies alike) via M&A and partnerships. It is also developing new types of WeWork brands, including dormitory housing and fitness facilities (some more promising than others).
In October 2017, WeWork announced the opening of its spa and gym, Rise by We. The facility, currently only offered at one location in New York City, is open to WeWork members, with a non-WeWork members fee starting at $100/month for access to four studio classes. WeWork intends to build out similar gym/spa offerings in other locations.
Part of what makes WeWork Labs compelling is that it does not accept equity from the startups participating in its incubator program. Instead it earns revenues off of renting out discounted office space, following its main business model.
WeWork recently announced it plans to open an additional campus location for its Flatiron School brand of intensive coding academies in Denver, Colorado, a city that has seen dramatic investment in its technology sector in recent years.
WeWork has certainly made London a central strategic focus. WeWork has become one of the largest office space tenant in central London, second only to the government offices of the United Kingdom, according to the Financial Times.
WeWork is also expanding in emerging markets with burgeoning tech scenes, especially China and India. We took a look at average prices in cities in these countries to see how they compare to other markets.
This has not deterred WeWork from expanding within Shanghai, likely because margins in the city are still favorable for WeWork, in addition to considerable expansion potential. WeWork has 35 locations in the city, and in 2017 it leased the largest Class-A office in Shanghai, a 290,000 square foot building in Huangpu District. (Class-A is highly prestigious office space.)
There were around 19,000 co-working locations around the world as of September 2018. While none are as well-capitalized as WeWork, the company has nonetheless been aggressive in weeding out competition, poaching members with offers of months of free membership.
Knotel is one example. The New York City-based company has raised $155M from investors including Bloomberg Beta, 500 Startups, and Rocket Internet, among others. In 2017, Knotel and two other companies accused WeWork of spying on its operations, sending employees to pose as potential customers.
San Francisco-based RocketSpace is a well-capitalized office space company designed to help startups grow, offering offices and accelerator services. The company notably also has enterprise clients. Founded in 2011, it raised $336M in 2016 in a corporate minority round from HNA Group, a Chinese conglomerate.
Convene provides space for corporate events, offering meeting and conference rooms with production support, amenities, and technology. Convene manages amenities for the Durst Organization in One World Trade Center, among other locations.
Today, it has 5 open locations spread across NYC, Washington DC, and San Francisco. More spaces are set to open in West Hollywood, London, Boston, Chicago, Toronto, and Seattle between spring 2019 and the end of 2020.
Some companies, such as Croissant and Spacious, have carved out spaces in other unique ways. Croissant grants members access to co-working offices around New York City, San Francisco, Los Angeles, Chicago, and Washington DC. Spacious, which raised a $9M Series A in 2018, partners with restaurants in New York City during no-service hours.
The Blackstone Group has also made its foray into the co-working industry, purchasing a majority stake in The Office Group, a flexible office space provider at a valuation of roughly $695M. Blackstone is the largest landlord in the US and one of the largest landlords in the world, with $250B in gross real estate assets under management (as of 9/30/18). Blackstone is also a landlord to WeWork.
In the UK, an industry-wide decline in lease lengths occurred for the first time in six years, and landlords feel obliged to make changes. One of the UKs largest REITs, British Land Co., has even started its own co-working brand called Storey.
In addition to putting a stake in the co-working game, landlords are building out their amenities to compete with the likes of WeWork: major commercial landlords are aggressively constructing communal spaces, happy hours, game rooms, and more to make their buildings more attractive to corporate tenants.
The building also will have its own app to assist in building security, conference center booking, food deliveries, and transportation updates. Powered by We offices for IBM and Verizon have already been earmarked.
Okeson is an alumnus of the University of Virginia where he received a Bachelor of Arts, with distinction, majoring in economics and minoring in mathematics. He also received a JD from the University of Virginia School of Law.
Sagi is responsible for leading technology initiatives across the Inspire enterprise, including enhancing technologies for company and franchise restaurants as well as the overall digital experience for guests.
Prior to Inspire, Sagi served as Chief Engineering Officer for Sephora Americas (an LVMH brand), where he was responsible for Omni-Channel Digital, Retail, Personalization & CRM including Loyalty and Data Insights technology capabilities and platforms.
During his time at Inspire Brands, Sagi was named to the Forbes CIO Next List, recognizing the top 50 top tech leaders redefining the CIO role and driving game-changing innovation. He was also named to the CIO 100 list and the Constellation Research 2023 Business Transformation 150 list.
Sagi is an alumnus of Jawaharlal Nehru Technological University, where he received a Bachelor of Technology in Electronics and Communications Engineering. He also received a Master of Science in Electrical Engineering from Southern Illinois University Edwardsville.
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