Who could ever forget the fiasco that was the WeWork IPO of last fall? Or the shocking moment when a fourth C-suite official sued the company? How about when SoftBank pulled its $3 billion tender offer, resulting in multiple lawsuits?
To say the least, it’s been a chaotic year for the workspace company. But WeWork has been resilient, despite financial woes, lawsuits, and a global pandemic. Still, due to widespread lockdowns, the company has undertaken massive layoffs and selloffs. And WeWork might not be finished just yet.
The Possible Pitfall of the Model
The reason WeWork is susceptible to economic downturns is inherent in its business model. The company makes money by entering long term leases on large properties, then renting those properties out by the desk space. That means, when business is good, demand is high and profits are enormous. On the other hand, when the economy declines, the most vulnerable companies are the first to drop out, which leads to a smaller demand for WeWork space. Some companies limit the number of employees – meaning desks – while others might not feel the need to pay for WeWork space it doesn’t need. As a result, WeWork is left on the hook for their large buildings even when very few workers are actually taking advantage of the space. Amid a recession–let alone a lockdown–the company was destine to hemorrhage money.
So far, 2020 has been uniquely horrible for WeWork, as thousands of its locations sit empty. Unemployment is sky-high, and those who are working are being forced to do so from home. As a result, the shared office space industry has suffered in a way that few other industries have.
Still, all of this is a temporary situation. Some factors still suggest WeWork could bounce back in a big way, once the commotion of 2020 passes.
The post-coronavirus world could be perfectly suited for WeWork. The pandemic and related lockdowns have taught a lot of companies that the traditional work structure is not necessary. An increasing number of corporations have told workers they’ll be able to continue to work remotely, even post-pandemic. The bricks-and-mortar, one-use office space could become a thing of the past.
However, as many people have noted, not everyone enjoys working from home (or can do it productively). Some households have two or more remote workers, as well as children, pets, and the other distractions. For those who can’t quite focus at home, but don’t have an office to go back to, WeWork might have a new customer base.
If WeWork is able to weather this storm and clean up its business practices, there could be great opportunity on the other side. Still, the barrier for entry into this market is relatively low. WeWork might have a few young competitors waiting in the wings.