S WeWork Companies Inc. - Case Study
Low entry prices and monthly rental income mean that you can plan your money more effectively.
WEWORK COMPANIES INC. - CASE STUDY One of the hottest commercial investments today is coworking office space. Bar Works NYC 24/7 serviced work spaces offers you the opportunity to invest in this fast growing subsector of the commercial property market. Here is a case study of similar company in the same market, so you can see just how affordable and lucrative this type of investment can be. Low entry prices and monthly rental income mean that you can plan your money more effectively.
WEWORK COMPANIES INC. WeWork was established in 2010 in New York by Isreali-born Adam Neumann and is one of the fastest growing co-working space providers in the world. The company has developed an organic community designed to service the needs of companies and individual members’ needs, ranging from desk space to on top coffee and beers. In the words of its founder Adam Nemann, “WeWork is much more than a place to work it is physical social network”.
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HOW THE FIGURES STACK UP
After only 5 years WeWork’s valuation stood at an impressive $5 billion.
Growth up to year-5 • 23,000 members in 2015, increased to around 50,000 in 2016* • Investor valuation - $5 billion 2014: $10 billion 2015: $16 billion 2016* After only 5 years WeWork’s valuation stood at an impressive $5 billion. During the next 12 months a further investment of $400 million by existing investors and Fidelity Management doubled its current worth to an incredible $10 billion. In March 2016, Fortune and the Wall Street Journal reported WeWork authorized the sale of as much as $780 million in shares as part of the last round of financing. As reported by Bloomberg, WeWork has recently accepted $430 million from Chinese investors Legend Holding and Hony Capital to facilitate expansion throughout Asia. As part of the financing round investors valued the company at $16 billion.
WEWORK INVESTORS The company has captured the interest of venture capitalists and lists Benchmark, Goldman Sachs Group Inc. Harvard Management Co., JPMorgan Chase & Co, T. Rowe Price Group Inc. and Wellington Management, as current investors.
INTERNATIONAL EXPANSION WeWork has around members - approximately half are in New York, where co-working office space is the fastest growing commercial investment - and the rest are spread across 32 worldwide locations throughout the USA, Europe, South America, Asia and Australia. The company’s expansion international programme is well underway and already includes London, Tel Aviv, Berlin and Toronto. The plan is to open between 3 and 5 new locations every month.
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“We are not competing with other co-working spaces. We are competing with offices. And that is a trillion asset class in the US.” WeWork Founder Adam Neumann.
WEWORK BUSINESS MODEL WeWork’s rents office space cheaply to investors via long-term lease contracts and then re-rents the space to individuals and organisations at a higher price. The cost of the unit per square foot is higher than traditional office space, but as they only rent a small area on a fixed cost flexible monthly basis, it is extremely cost effective. Investors purchasing the long-term lease will receive monthly rental income from their individual units throughout the duration of the contract. The business model addresses the demand for flexible affordable office space for start-ups and the growing trend towards freelance, contract and temp worker. WeWork essentially sublets office space thereby removing many of the day to day hassle of being self-employed. Larger corporations also seeing the value, for example General Electric rents 20 desks in Boston, KPMG rents 75 desks in Manhattan and even the Guardian Newspaper in London rents a number of desks.
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By 2020 some 65 million Americans will be freelancers, temps, independent contractors and soloprenteurs, making up around 40% of the workforce.
THE MARKET FOR CO-WORKING SPACE The trend towards freelance and independent contractors is a widespread amongst developed and developing countries, which in turn will lead to increased demand for flexible fixed cost no hassle work spaces. The benefits office remote office space, hot-desking or co-working space, are acknowledged by both companies and workers.
REAL ESTATE COST MANAGEMENT
US Bureau of Labor Statistics 2015
Co-working office space has been recognised as a way to reduce real estate costs. According to CBRE, if a company takes on a 5-year lease and builds an office, it will be at least 5 years before they break even. Renting individual units from WeWork means that although the price per square foot is slightly higher, the overall cost is much lower.
PRODUCTIVITY AND NETWORKING
Research published in the Harvard Business Review reports that workers thrive in shared office space: providing a feeling of empowerment, sense of purpose and community. The results were so positive that they needed to be checked twice. Largest companies currently make up the fastest growing market, with approximately 30% of WeWork’s members renting 10 or more desks.
Further reading http://uk.businessinsider.com/wework-business-model-2015-7 https://hbr.org/2015/05/why-people-thrive-in-coworking-spaces *Figures provided by Bloomberg http://www.bloomberg.com/news/articles/2016-03-09/wework-raises-funds-at-16billion-valuation-
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S Logical Investments 0044 203 399 9436 23 Hanover Square London, W1S 1JB www.logical-investments.com info@logical-investments.com