Coworking Space Provider WeWork Slashes Rent Up To 50%

Coworking Space Provider WeWork Slashes Rent By Up To 50%

GLOBAL – WeWork, a provider of flexible workspaces across major office markets in the world, is reducing its rents to retain clients, putting the spotlight on the hard-hit coworking industry whose lessees have worked from home for months due to the COVID-19 pandemic, reported The Financial Times on Thursday morning (15 October).

The company is offering discounts on a case-by-case basis to existing customers across the globe, considering the client’s size and the period they have agreed to remain in one of WeWork’s coworking centres. For some clients, it’s slashing the rate by half for office rent the customer will pay over the next several months.

Following a cancelled Initial Public Offering (IPO) attempt that led to a plunge in its US$47 billion market valuation in January 2019, the lossmaking firm supported by Japan’s SoftBank wants to show to the public that all is well after the virus outbreak forced it to shutter offices worldwide and SoftBank reduced the company’s market valuation to merely US$2.9 billion in 31 March 2020.

In fact, WeWork is being overseen by a new management and it recently put up new advertisements in the New York Times that it’s “here to stay” thanks to its liquidity of at least US$3 billion as of 30 June.

However, the company’s move to offer discounts highlights the struggle of the entire coworking industry. Notably, IWG and WeWork, which claims to be the biggest provider of coworking spaces in the world, don’t own their offices. Compared to traditional office landlords who rent office space on long leases, coworking space providers team up with property owners to subdivide the premises and rent them out on shorter leases.

As such, these companies have been significantly impacted by the pandemic, which has forced most employees to work from home and compelled businesses to review their office space needs. In August, WeWork revealed that its sales fell by around 20 percent in both Q1 and Q2 2020 as it lost 12 percent of its members.

Moreover, coworking space providers are trying to persuade building owners to give discounts. For example, WeWork hired property consultancy Knight Frank to help with the restructuring of its leases in the United Kingdom as part of its worldwide review to reduce costs.

In comparison, IWG has taken a more aggressive approach. It placed Jersey-listed Regus, its biggest subsidiary, into insolvency in an attempt to coax property owners to accede to concessions. By filing for insolvency, wouldn’t have to pay lease guarantees of nearly £800 million.

In the United States, IWG has placed 90 to 100 coworking centres into Chapter 11 bankruptcy, which works out to roughly 10 percent of its whole portfolio in the country.

Despite COVID-19’s negative impact on the office market, both WeWork and IWG are upbeat on the future as they believe that coworking tends to flourish in a downturn, as businesses are attracted to shorter and more flexible leases.

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