WeWork, the co-working company that has been struggling to survive amid the pandemic and a failed IPO, announced on Wednesday that it intends to renegotiate almost all of its leases with landlords and exit locations that are unfit and underperforming. The move is part of the company’s efforts to cut costs and improve its cash flow, as it warned last month that its continued existence was in doubt.
WeWork’s Financial Woes
WeWork, which provides shared office space and services to freelancers, startups, and corporations, has been facing financial difficulties since its botched attempt to go public in 2019. The company’s valuation plummeted from $47 billion to less than $8 billion, as investors questioned its business model, governance, and profitability. The company also faced lawsuits from former employees and shareholders, as well as scrutiny from regulators.
The company was rescued by SoftBank, its largest shareholder, which injected $9.5 billion in exchange for an 80% stake. However, the pandemic worsened WeWork’s situation, as many of its tenants stopped paying rent or canceled their memberships, leaving the company with a huge portfolio of long-term leases and empty spaces. The company reported a net loss of $3.2 billion in 2020, and a net loss of $2.1 billion in the first half of 2021.
WeWork’s Turnaround Strategy
In an attempt to turn around its fortunes, WeWork has been implementing a series of measures, such as reducing its headcount, selling off non-core assets, closing unprofitable locations, and focusing on its core markets. The company also hired a new CEO, David Tolley, who took over from Sandeep Mathrani in July 2021.
Tolley said on Wednesday that the company was renegotiating nearly all of its leases with landlords, aiming to reduce its rent obligations by 30% to 40%. He said that the company expected to exit unfit and underperforming locations, which accounted for about 15% of its portfolio. He added that the company was also exploring new revenue streams, such as offering flexible workspace solutions to large enterprises and expanding into new segments, such as education and wellness.
Tolley said that the company was confident that it could achieve positive cash flow by the end of 2023, and that it was still planning to go public through a merger with a special purpose acquisition company (SPAC) called BowX Acquisition Corp. The deal, which values WeWork at $9 billion including debt, is expected to close in the fourth quarter of 2021.
WeWork’s Future Prospects
WeWork’s announcement comes at a time when the demand for flexible workspace is expected to increase, as more companies adopt hybrid work models and seek more agility and convenience. According to a report by CBRE, the global flexible office market is projected to grow by 21% annually over the next five years, reaching 13% of total office space by 2030.
However, WeWork also faces stiff competition from other players in the industry, such as IWG, Industrious, and Knotel, which have also been expanding their presence and offerings. Moreover, WeWork has to contend with the uncertainty caused by the pandemic and its variants, which could affect the pace and extent of recovery in the office market.
WeWork’s success will depend on its ability to execute its turnaround strategy effectively, while adapting to the changing needs and preferences of its customers. The company will also have to prove to investors that it has a viable and sustainable business model, and that it can deliver consistent growth and profitability in the long term.