I recently watched the We Crashed Apple TV series based on the global shared workplace group WeWork and also read the book, Billion Dollar Loser. After, We Work’s official launch in 2010, we witnessed a crazy story of growth and good times. Maybe too many good times.
While WeWork certainly has the largest global co-working community, there are other co-working space brands out there too. I still believe in the shared office space model; but I also believe that the model was premature and that people are sheep. Just as shared workspace and hot-desking began to grow in popularity around the world and not only in SA, Covid-19 changed consumer behaviours markedly. People were forced to isolate and to work from home. But working from home is not always a seamless process. I find the biggest challenge with work-from-home is creating community, encouraging company culture among staff and managing productivity. A shared office space can provide all of these things at a decreased cost and in line with hybrid work environments. It doesn’t have to be extravagant and stylish either, but it needs to be functional.
WeWork is not a tech company
Everyone loves to throw money at anything tech and perhaps that’s why the world wanted to throw it at WeWork. South African landlords were very eager to copy the concept and perhaps this was an attempt to diversify their own portfolios. The WeWork company listed two years after they announced their IPO and today, they still make a loss. Personally, I have never understood how anyone could view them as a tech company (which supposedly backs up the ludicrous valuations). They sell space as a service. They take on the risk, daily operations and commitment of a lease agreement to give the tenant what they want: flexibility, time to focus on core business activities and fewer overheads.
One of the great selling points for WeWork’s multiple locations was that you could travel for work and still have access to your fully serviced office space no matter where you are in the world. With the zoom boom that resulted from the pandemic, I have a feeling that many companies will cut travel for work, unless absolutely necessary and this will kill the multiple location concept selling point.
WeWork’s failed IPO took them from a $47 billion valuation to an $8 billion valuation. There were thousands of layoffs, the removal of Adam Neumann as CEO, and dozens of WeWork office closures as the company was forced to cut costs. They have locations in more than 127 cities and thanks to Covid and the worldwide over supply in office space, one has to ask the question; was WeWork’s model before its time or is there enough demand to sustain the already large amount of square metres that they lease?
Co-working space in South Africa
A few years back, I personally assisted a landlord in Cape Town in setting up their shared office space division. The model relies on maintaining a certain level of memberships to cover overheads and make a profit. Membership can be volatile as customers who were once attracted by the flexible cancellation options, make use of it when circumstances change. You can imagine that when the pandemic hit, everyone cancelled their co-working space memberships.
Growthpoint also invested into the space, through a joint venture into the Workshop17 brand. Larger international players such as Regus and their sub-division SPACES also opened up shop in South Africa, along with many private individuals who were inspired by the WeWork model. The birth and growth of WeWork certainly got the world excited about the concept. But executing it profitably remains a different story.
Tech start-up culture fuelled the WeWork hype with its non-traditional office lifestyles. A few years back I had tech start-up customers looking for office space and their requirements included ping-pong table zones, games rooms, juice bars and unique staff welfare benefits like surf hour allowances. As in, if the waves were good, you could leave work early to go surf. Naturally, the founder was a surf fan.
This start-up company culture married exceptionally well with the WeWork brand and the work experience that they offered. Personally, I do not think South Africa has really ever had the Silicon inspired culture. WeWork leases the most office space in New York when compared to any other office user. Maybe the concept works well there because Manhattan living spaces have always been notoriously small, therefore, the idea of a collaborative space that is chilled and creative is appealing. What worked in the USA pre-pandemic matched their culture. That’s not to say it would work in South Africa. So why did so many South African landlords jump on the co-working bandwagon and who was successful?
WeWork operations in South Africa
WeWork leased six floors and just under 10 000m2 at 155 West Street, Sandton, Johannesburg in December 2019. They leased five floors of 11 629m2 at The Link, 173 Oxford Road, Johannesburg in June 2019. Lastly, they leased four floors of 3 350m2 at 80 Strand Street in Cape Town. Today, there are plenty of vacancies in the offices above.
Which brings me to my personal conclusion; WeWork was before its time and the concept is still very premature in South Africa. I am not referring to the crazy overheads brought on by the eccentric founder and CEO. I don’t believe that any business can justify millions of rands towards private company jets, R6000 bottles of Don Julio tequila as a staple drink in the office and parties that blew the bank with the hiring of international performance artists – all the while making a loss.
Some people might feel that a co-working space is a breeding hotspot for Covid-19. But the shared office space model has a place post Covid, perhaps even more so now, as hybrid models of work come into play and employees look for a collaborative work space for when they are not working from home. There is a place for it in corporate too and many international banks, insurers and legal firms are making use of memberships at shared office space set ups to house certain departments. And why not? It is flexible and cost-effective.
When doing research for the shared office space division that I assisted setting up a few years back, I did a co-working safari and visited close to 65 shared office spaces throughout Johannesburg and Cape Town. The number of co-working spaces today has tripled and oversupply is a real concern. The model is also designed to attract startups and unfortunately the number of startups in South Africa and more importantly, successful ones, is very few. South African landlords should focus less on copying the US’s WeWork corporation and more on the concept of community that was inspired by WeWork. They must create collaborative, creative and engaging spaces for office users. If WeWork leased spaces to provide members with flexibility and landlords already owned those spaces, South African landlords should spend less money on expensive shared office space fitouts and rather focus on the layout. More outside zones, windows that open, meeting spaces that encourage brainstorming and a place for employees to connect. Also, market it at the right price and make commitment flexible.
With hybrid working models, employees crave connection with their co-workers. South African landlords need to focus less on copying the novelty culture of USA and more on the needs and wants of South African office users post pandemic. Many South Africans can barely afford to pay their monthly bond payments on their house and an office is a privilege for many business owners. Create affordable and collaborative space within your building and the tenants will come.