Markets
What WeWork’s $2bn loss means for flexible offices
WeWork reported a $2.1bn loss in the first quarter of 2021 after a year of falling memberships and a continued attempt to turn the business around. Should WeWork’s woes spook its competitors, or is the flexible office market on course for a recovery?
In its Q1 results, WeWork reported $598m in revenue – a 46% fall on Q1 2020 when its turnover hit a record $1.1bn.
Memberships had declined by 200,000 in one year, and revenue took a further hit from the disposal of non-core businesses – part of WeWork’s goal of becoming a more focused, profitable operation.
The flex office provider spent $494m on restructuring costs “driven by non-cash SoftBank stock purchases and settlement with Adam Neumann”, who was ousted as CEO after WeWork’s failed IPO in 2019.
After a tumultuous year, WeWork is trying to steady the ship ahead of its plan to go public through a SPAC merger with BowX Acquisition Corp. The deal would value WeWork at $9bn.
Although its rise and fall has captured the public’s attention like no other flexible office operator, WeWork faces many of the same hurdles – and opportunities – as its competitors.
New leadership, new direction
At the height of WeWork’s rapid growth, Knotel emerged through a similar trajectory. Founded in 2016, Knotel reached unicorn status in 2019 having, in about a year, quadrupled its footprint to 4m sq ft of flexible office space. At the time, some competitors felt that Knotel had overstretched itself and expanded too quickly.
However, fortunes faded even more quickly and, once the pandemic bit, Knotel went from being a $1.6bn company to filing for bankruptcy within a year. Newmark acquired the business in March and hired a new leadership team – including former WeWork vice president Michael Gross as CEO.
Both WeWork and Knotel are now under new leadership, pursuing strategies to make themselves profitable.
WeWork is ditching its non-core offices, terminating 110 leases and executing 280 lease amendments since the start of 2020. The company estimates that it has saved $275m in the process. When it announced the SPAC merger earlier this year, WeWork said: “Today, WeWork is a more focused company built around a core flexible space business that is poised for substantial growth.”
In March, WeWork had its first net positive month of desk sales and membership gains since February 2020, and it hopes that momentum will continue as lockdown eases.
Removing other unnecessary expenditures, the company has also made franchising a key part of its leaner business model. As of March, it has franchised 138 locations, and in April it struck an agreement with Israel’s Ampa Group, giving it exclusive rights to operate WeWork Israel as a franchise.
Meanwhile, Knotel under Newmark ownership is doing something similar by focusing on a management service model. Management agreements allow flexible office suppliers to take on considerably less risk by providing services to other people’s offices rather than taking on leases themselves.
That allows providers to take a more cautious approach to expansion, while allowing landlords to offer a flexible office product without needing the in-house expertise to manage it.
What about other operators?

IWG’s share price fell 65.9% between 17 January and 20 March 2020, but it has since recovered some of those losses Source: London Stock Exchange
While WeWork is the most recognisable name in the sector, it represents just 3% of flexible offices globally (1% in the UK), according to the Instant Group, and isn’t necessarily representative of the sector as a whole. But there are similarities.
IWG, the world’s biggest flexible office provider, is also pursuing franchising as a “key focus for growth”, the company said in a Q1 trading update. As of March, IWG had 53 franchise agreements, with a total commitment to open 645 locations.
In a statement, the company said: “With favourable trends in the evolution of the workplace, including the adoption of hybrid working by many more enterprises, interest in partnering with IWG has strengthened significantly through the quarter and we have a very strong pipeline of potential partners.”
IWG’s revenue had fallen 20.9%, year-on-year, but it said occupancy rates had stabilised in February and improved “modestly” in March. The company’s steadily rising share price, up 45.7% in the last 12 months, implies some cautious confidence from the market – although IWG is still trading at 21.8% below its pre-pandemic peak.
Far from worrying about the viability of flexible offices, the industry has embraced the sector to an even greater degree during the pandemic. CBRE acquired a 40% stake in Industrious – another business that focuses on lower risk management agreements – earlier this year.
At the time, CBRE cited a survey showing that 86% of its occupier clients planned to incorporate flexible office space into their real estate strategies. Although the global property agent already had its own flexible office brand, Hana, it had been a small part of the business. By acquiring Industrious, CBRE is able to capitalise on flexible office space on a greater scale – just as its competitor JLL pursues its own flexible office products in the US.
Bob Sulentic, president and CEO of CBRE, said: “Our investment in Industrious is consistent with our view that flexible office space is playing an increasingly central role in companies’ occupancy strategies and aligns us with an exceptional operator and an outstanding leadership team that is executing a great strategy.”
A suburban renewal
CBRE’s views echo data from the Instant Group showing demand for flexible office space, especially in regional suburban areas of the UK, above pre-pandemic levels.
John Williams, chief marketing officer at the Instant Group, says that occupancy during lockdown stayed at around 85% in places like suburban Manchester, while demand is now up 30% on normal levels. That demand is driven partly by people looking to reduce commutes and maintain a work/life balance.
“There are businesses under pressure, but we haven’t seen this huge consolidation or retrenchment that you would have assumed if we’d spoken a year ago,” Williams says.
He adds: “Because of the great increase in regional demand and occupancy, the level of interest from landlords looking to flip their space into flex – or at least have a flex offering within it – has never been as high.”
Even London is showing signs of recovery. Earlier this month, Workspace reported that its lettings had risen from 71 in January to 150 in March. Although the quarter’s monthly average was slightly below the same period last year (111 vs 117), March’s total suggested a strong rebound was happening.
Workspace CEO Graham Clement hailed what he called “a new paradigm” in the way people work, although occupancy rates are still far below pre-pandemic levels.
For businesses like IWG, Knotel, WeWork and others, recent months are seen as an inflection point. Market demand is showing signs of recovery, and the goal for these operators is to tap into that recovery with leaner, more focused, capital-light businesses. As long as they can do that, their confidence for the future is high.