In 2010, Adam Neumann and Miguel McKelvey started WeWork, a company that provides shared work spaces for startups, small businesses, freelancers and entrepreneurs. WeWork has been remarkably successful. After only eight years since opening its first location in New York's SoHo district, WeWork now has 270 co-working locations in 90 cities. The Company has a current valuation in excess of $20 billion and manages 10 million square feet of office space. In Portland, WeWork has three locations: 30,000 square feet in Pioneer Place, 100,000 square feet in the Portland Custom House and 75,000 square feet in the Power + Light Building on Southwest Sixth Avenue.
While such growth is impressive, WeWork has become more than just a company that rents space and provides office services to their co-working tenants. Through its partnerships with vendors, WeWork offers its tenants such products as software, loans, and insurance. Now, WeWork has announced that it will create a real estate advisory services division, to be called WeWork Space Services, which will provide leasing advice to tenants leaving the WeWork space and moving into traditional office space. As Dave Fano, WeWork's Chief Growth Officer, explains: "These potential tenants will have been screened by our space services team and their needs identified. We will help them find office space best suited to their requirements, giving them access to inventory they would not otherwise have." While WeWork insists that this new division is not a brokerage, it's clear that the Company is moving into the tenant representation world.
It will be interesting to see if WeWork's expansion into office brokerage will impact its relationships with local commercial brokers. Previously, WeWork has offered brokers who sent them tenants 10% of the rentals received for the first year and 2% for expansions and renewals. Most commercial brokers have been willing to make referrals to WeWork because the individuals and small businesses they represented were too small and lacked the necessary balance sheet to secure a traditional office space lease. But are brokers going to continue to make such referrals if, knowing that after their client "matures", their former client will likely turn to WeWork's in-house consultants to help them find their next space? There appear to be mixed feelings in the leasing brokerage community in New York City where the pilot project for WeWork Space Services will be launched. Some brokers say they will continue to make referrals to WeWork because it's hard to pass up on the immediate commission. Other brokers believe that WeWork is biting off the hand that feeds them. These brokers say they will refer their small clients looking for co-working space to WeWork's competitors.
Perhaps in an effort to encourage brokers to continue to make referrals, Dees Stribling of Bisnow National reports that WeWork recently struck a deal to give brokers at Cushman & Wakefield, JLL, and CBRE more sizeable commissions. Now brokers at those companies will get a 20% fee on a one-year lease and 5% on expansions and renewals.
While this new service will be offered initially only in New York City, it is anticipated that WeWork Space Services will be offered in at least some other WeWork locations.
An interesting aspect of WeWork Space Services is that their clients receive a complimentary, one-year global co-working membership. So, even if they leave WeWork, they still will have access to WeWork's other locations when they travel for business. The obvious objective is to retain their former tenants as members, even if they are not leasing space from WeWork. As Mike Phillips has observed in Bisnow London: "Like Hotel California, you can check out from WeWork, but do you ever leave?"
WeWork continues to grow and evolve, adding new product offerings along the way. Some believe that WeWork is positioning itself to go public. As stated by Cresa New York Managing Principal Peter Sabesan: "I believe the big picture is that WeWork will go public and this is just one more 'cog' in the wheel for potential revenue as WeWork attempts to touch every facet of the real estate market."
Will WeWork continue to grow and be successful? After all, according to self-reported figures as stated in the 2017 Global Co-Working Survey from Deskmag, only 40% of all co-working spaces are profitable. Given WeWork's ability to innovate, which has enabled it to raise significant private capital, I'm betting that they will be around for years to come. The only question in my mind is if, and when, they will go public.