While WeWork’s catastrophic downfall may be full proof of its poor business management, its latest bankruptcy filing represents an indictment on the entire coworking business model.
The idea of coworking is more important than ever as flexible working is gaining ground worldwide. The future of five-day in-person work weeks remains up for debate, and companies across the country are maintaining hybrid work options post-pandemic. This year, 73% of U.S. workers reported working in an office three or more days a week, with an average of three to four days in-person, according to a McKinsey survey. Only 15% of his workforce currently works fully remotely. This is a strong indication that his hybrid work, previously referred to as the “new normal,” is here to stay.
What prevents WeWork from capitalizing on the paradigm shift in commercial real estate is that WeWork’s innovative brand is built on the same traditional parameters that commercial real estate has used for centuries. It depends on the facts. The coworking business model involves long-term leases with fixed prices, and a big bet is that occupancy and rents will remain high. This creates a significant risk imbalance between landlords and occupiers in terms of contract length. As revealed in WeWork’s infamous S-1 filing in 2019, the average lease term is approximately 15 years. This allows the company to offer flexible lease terms to its customers while remaining committed during interest rate cycles and market downturns.
Coworking fits the product market when prices are low and companies are not strict about burnout. When interest rates are high and your wallet is tight, the consequences can be dire, as WeWork’s recent bankruptcy proves. It has nothing to do with the demand for flexible working environments.
When office space goes unfilled, it’s the coworking platforms who lose out, not the landlords. More than 20% of U.S. commercial real estate space will remain vacant as of the third quarter of 2023, according to JLL. This poses an existential crisis for companies like WeWork, which have offered valuable products to consumers but are struggling to contend with an outdated model that has failed to change the status quo with landlords. There is.
While coworking is touted as an ingenious means of introducing energy and collaboration into the workplace, it is also built on the foundations of the same age-old models it claims to transform. It’s time to accept that fact.
Colleagues are eager to build culture and feel a sense of belonging to the company. To do that, you need privacy, not a shared floor with outside distractions. Existing research has proven that more than 52% of employees prefer private offices over open floor plans, and this is a fundamental aspect of the coworking model. These employees want to work in-person, not to be part of WeWork’s culture, but to feel connected to the company’s mission and culture.
Today’s flexible office environments encourage employees to enjoy the benefits of a workspace that allows them to interact closely with their colleagues. If participating in coworking diminishes the meaning of these interactions, then the model’s core value proposition is, at best, not addressing the needs of a significant portion of the customer base.
In many ways, WeWork’s collapse is just the tip of the iceberg of a model that has failed to live up to expectations. Workplace issues are clearly a recurring theme for years to come, but it’s time to accept that collaboration is not the answer.
Christelle Rohaut is the co-founder and CEO of Codi.
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