The rush for the tech and high growth companies that rose out of the ashes of the 2007/08 financial crisis to launch IPOs this years shows no signs of abating with co-working space giant WeWork the latest to announce its intentions. U.S.-Israeli WeWork has quickly expanded over the past several years and is now the single biggest occupier on London’s office market.
The company leases more square footage than the likes of the BBC, HSBC and Barclays. Much of it is in Grade A buildings in premium locations such as South Bank and now totals more than 3 million sq ft. WeWork also now runs co-working spaces in Manchester and Edinburgh and has built a presence in a total of 27 countries since being founded in New York in 2010.
Co-founders Adam Neumann and Miguel McKelvey latched onto the new but quickly growing trend of flexible working spaces popular with start-ups and small companies to great effect. While most co-working office spaces are relatively small and slightly scruffy, if hip, WeWork took the new sector upmarket.
Its branded and managed co-working premises meet Grade A specifications and while still roughly adhering to a ‘hipster’ design feel are luxurious. The business model is renting offices and ‘hot desk’ space where freelancers or sole traders can work in a common, open plan space with access to call booths and meeting rooms on a flexible basis. Offices can be rented for as little as month and conference rooms by the hour, day or week.
The model bears many similarities to the short-term leased office space model of yesteryear, where Regus is the biggest name. However, it offers even greater flexibility and, crucially, a trendier, more modern and upmarket feel. WeWork’s success and rapid growth can be compared to how to iPhone cornered a lucrative section of the smartphone market by placing an emphasis on design and image. WeWork is the iPhone of flexible office space to Regus’s Nokia or Motorola.
At its most recent private investment round WeWork was valued at a huge $47 million. On the presumption of an IPO premium on that valuation offering a return to early investors in it as a private company, WeWork’s IPO will be one of the biggest in history. Only Uber’s impending $90 billion IPO is likely to be bigger this year if it goes ahead before the end of 2019. For now there is no fixed timetable on the offering but many industry insiders believe it will take place this autumn if market conditions remain suitable.
Like Uber, WeWork still operates at a heavy loss. However, again like the ride-hailing app and driverless vehicles technology company, WeWork insists this is purely down to the level of investment in its huge growth rate. Chief financial officer Artie Minson stated in a March interview with The Times newspaper that the company “could turn the business profitable any given Friday if we chose to. That would just require us to slow down the growth of the business.”
Critics have pointed to the fact that WeWork has been raising investment at valuations that would be expected of a high growth tech company and that the reality is it is a commercial real estate management company.
Commercial property companies are traditionally valued much more conservatively due to the fact the business tends to be cyclical and susceptible to economic downturns. The discrepancy between WeWork’s valuation in comparison to peers in the office space industry can be compared to how Tesla is valued far more aggressively than traditional, established automakers.
However, such has been the success of the WeWork model, other more established commercial property companies such as British Land and Great Portland Estates have started to offer their own flexible, co-working style office spaces.
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