WeWork to take drastic action to survive Covid crisis after rapid expansion
The office-sharing company WeWork has outlined drastic steps to survive the pandemic, after aggressive expansion left it with acres of expensive office space just as demand for communal working dived.
Accounts filed at Companies House show that the UK subsidiary, WeWork International, racked up losses of £234m in 2019, after signing a flurry of new leases for buildings.
They committed the company to making billions of pounds in future lease payments to commercial property landlords, but thanks to the coronavirus outbreak, income from the freelancers and small businesses to whom it sublets space has dried up.
In a statement in its UK accounts, but applicable to its worldwide operations, WeWork said it “expects there will be a material impact on the global demand” for its services.
The pandemic has made it harder to collect rents from existing customers and reduced demand from new ones, forcing the company to offer discounts. At the same time, it said, suppliers are tightening their credit terms.
WeWork said it and its US parent company, WeWork Inc, had enough cash reserves to withstand the “near-term” uncertainty, but did not address the ramifications of any lasting shift towards remote working.
In the short term, the company will cut costs by delaying the opening of new offices and putting investment in areas such as marketing and maintenance on hold.
But the most crucial factor in its future will be negotiations with commercial landlords, whom it hopes to persuade to defer or reduce rents in light of the pandemic.
WeWork’s UK subsidiary had committed to more than £5bn of future lease payments as of the end of 2018, according to analysis by the Guardian at the time those accounts were released. Since then, it has increased the number of its UK premises from 39 to 58, indicating that its lease obligations have increased significantly.
On a group-wide level, WeWork Inc has future lease commitments of close to $50bn, leaving it – not to mention its commercial property landlords – highly exposed to any permanent shift away from office working.
Rather than countenance a long-term move towards working from home, the company said it was adapting to customers’ changing needs “as they consider a return to work in the coming months”.
“These enhancements include implementing professional distancing standards, de-densifying common areas, and reconfiguring offices,” it said.
WeWork’s expansion has been as volatile as it has been rapid, amid wildly fluctuating valuations and controversy surrounding its founder and former chief executive, Adam Neumann.
The company was forced to abandon a $20bn float in September 2019 after investors balked at heavy losses and publicity around Neumann, including his decision to take $700m out of the company before the float.
WeWork’s growth under Neumann was based on a leasing model that deferred the rents it owed to landlords in return for higher payments later on.
But the failed float debacle – coupled with mounting losses – prompted its largest shareholder, Japan’s SoftBank, to weigh in with a financial rescue package. Despite cutting staff and cancelling expansion plans, WeWork has continued to lose money.
The company was valued at $47bn at one stage before its cancelled listing, but SoftBank said it was worth just $2.9bn last year, with its founder and chief executive, Masayoshi Son, declaring his investment in the company “foolish”.
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