The coworking industry has significantly changed in recent years, driven by the global shift towards more flexible and hybrid work models. This change, accelerated by the pandemic, has led to a surge in demand for coworking spaces. It is evolving rapidly, shaped by trends in work culture, technology, and a focus on flexibility, community, and well-being.
In recent weeks, the industry has been at the center of attention due to WeWork’s bankruptcy announcement. Through them, key lessons must be learned for all startups to grow their business successfully.
Quick glance at WeWork’s history
WeWork’s culture, shaped by Adam Neumann, created the global movement of flex office adoption by a diverse range of tenants, including startups, SMEs, and multinational corporations. This played a role in its rapid expansion. Still, due to various challenges, including corporate governance, business model viability, and financial management, WeWork had to file for bankruptcy after a series of setbacks, including its unsuccessful IPO attempt in August 2019 and Neumann’s departure in September 2019.
Subsequently, a new CEO, Sandeep Mathrani, was appointed. Known in the industry as a turnaround expert with deep knowledge in real estate, Mathrani took over after holding positions as CEO at some of the largest REITs in the United States, including GGP and Vornado. Under his leadership, WeWork began its turnaround, successfully listing its SPAC (Special Purpose Acquisition Companies) in 2021, negotiating lower rents from landlords, and closing many unprofitable locations. While the WeWork team under the leadership of Mr. Mathrani valiantly defended the position of WeWork and seemed to have successfully won over many battles and delivered results in a seemingly impossible situation, the question is raised as to what led to the fall of WeWork and its current position?
WeWork’s business model and its alternatives
WeWork adopted the “Growth-at-all-cost” business model, emphasizing revenue growth and expansion over profits. While this strategy was supported during profitable times with readily available funding, any coworking space built with low occupancy will generally adversely affect the business’s profit margins. Unsurprisingly, it did not end well because there was a lack of consideration for the financial risks of this growth strategy during that phase.
WeWork’s situation has ended the grow-at-all-cost business model era, especially for the coworking industry and the broader startup world. A new business model must be built because, while WeWork’s problems have garnered much negative media attention, one company’s performance in a blue ocean industry, especially in the beginning stages, doesn’t spell the end for the entire sector.
Much like the early years of Amazon’s formation, many competitors entered, exited, or pivoted their business model as the industry’s business cycle matured. Players in the coworking industry, such as Regus and WORQ, have proven that a profit-driven business model works, as demand for these sustainable companies’ products is unprecedented in the post-COVID era. These companies prioritizing sustainable growth in each outlet enables reinvestments and expansion of the business into many outlets across various locations, cities, and regions, further strengthening their overall profitability and going from strength to strength.
The business model with a strong moat and long-term potential, which WORQ adopts, mirrors that of Amazon’s cloud server business in terms of building an infrastructure of modern offices available to users to use real estate flexibly. Like Amazon Web Services, which enables companies to use servers bite-size by bite-size instead of purchasing and maintaining their own expensive servers, WORQ offers a network of modern office infrastructure that users can use headcount by headcount.
However, setting up this infrastructure to grow at breakneck speed without the pitfalls of fast-growth companies requires a few years of meticulous foundation-setting. Tracking similar developments as Amazon in its early years, once established, growth can be remarkably rapid and extensive, often more efficiently and with fewer risks.
It is tremendously beneficial for me to have been groomed and trained by Amazon’s top management during my days as a Stanford researcher. My boss was Professor Patrick Bajari, Amazon’s long-time Vice President of Core Artificial Intelligence and Chief Economist, who served at Amazon for 12 years in permanent senior roles and as a consultant before that. Learning from Amazon is instrumental in WORQ’s current and future positioning and strength, as it sets itself apart as an innovation firm.
Additionally, companies that can empower their paying customers and the wider business community will flourish as future generations value a more inclusive culture in their work lives. Beyond a standard coworking space, WORQ cultivates a thriving community. They foster a vibrant community by welcoming anyone to their locations, not just members, to interact and collaborate. This open environment encourages the exchange of ideas and fosters business opportunities through teamwork. Finally, strong corporate governance is fundamental in this framework, serving as a cornerstone for building investor trust and ensuring long-term sustainability.
WeWork’s announcement creates a void
While WeWork’s announcement is sensational, many in the market, including the investing community, believe it could create an opportunity for the next strongest player to fill the void. Companies operating with high efficiency and offering a business model that has been consistently profitable, not just recently profitable, have a tried and tested model. Now that WeWork is no longer taking that position, they can expand into this void and be the incumbent
Trends In the coworking industry post-WeWork
While WeWork garners exceptional news coverage, the coworking industry is larger than just one company. CBRE, the global real estate consultancy firm, published a survey that states that 7 out of 10 companies will be using some form of coworking space in the next 2 years. In another study by The Instant Group, 50 percent of surveyed landlords indicated that 25 percent of their office spaces would be allocated to providing coworking solutions in their buildings to service their clients. The coworking penetration rates, defined as square footage of flex space divided by total office space, are only at 1 percent in Malaysia currently, compared to the 3 percent Asian average.
However, global Real Estate consultancy firms such as CBRE and JLL are predicting that the long-term penetration rate in steady states will reach up to 30 percent, making it the mainstream office product for the future, mirroring that of e-commerce trajectory vs brick-and-mortar retail. In Malaysia alone, this is worth up to RM6 billion in market size and may increase as companies seek to diversify their locations from larger economies, such as the United States and China, as well as those seeking cost-effective alternatives to the high operating costs in cities such as Singapore.
WORQ’s experience, exemplified by its impressive 90 percent occupancy and extensive waitlist, reinforces the strong growth prospects of the coworking space market. Established real estate developers and owners like UOA REIT and Sunway REIT see the potential of coworking and have entered into closed strategic partnership agreements with WORQ. Through these partnerships, WORQ becomes the chosen flex office provider for their buildings, as exemplified by Menara UOA Bangsar and Sunway Putra Mall locations. These collaborations provide the landlords’ buildings with flex space amenities for tenants, making their buildings more user-friendly and competitive for their users.
Importance of flex-office infrastructure to attract FDI
Malaysia’s strategic geographic and cultural position makes it an attractive destination for foreign investment. This is especially crucial when companies decide where to diversify their teams, presenting an opportunity to contribute to the nation’s economic growth and reinforcing Malaysia’s status as a regional business hub. Coworking spaces encourage real estate sharing and help companies enter and set up offices quickly and seamlessly.
With an infrastructure of modern offices readily available for companies, similar to having a network of cloud offices ready for usage anytime, anywhere, teams can be set up quickly and, more importantly, flexibly. This means minimal extensive planning for their headcount on the companies’ end. In addition to ease of deployment, companies can also obtain many business services from the coworking space provider; once they set up shop in these cloud offices, they encounter many solutions offered in these one-stop business hubs.
This encourages business formation and FDIs in Malaysia as companies from high-cost economies diversify to Southeast Asia. As global tensions catalyze companies to re-look at where to base their teams and boardrooms worldwide and decide where to diversify their locations, this once-in-a-lifetime chance to attract investments into Malaysia suits the country’s growth. This aligns with Prime Minister Dato’ Seri Anwar Ibrahim’s agenda to attract foreign investments into Malaysia. The benefits are not just job creation and income for Malaysians but the influence, training, and virtuous cycle these FDIs will bring to the nation.
Another nation-building agenda supported by coworking spaces is the ability to enable companies to hire talent remotely. Companies find tapping into talent from far-off locations easier as the global flex work trend continues. This means that companies have a whole new demographic of talent opened to them from those unwilling to relocate to economic centers.
For example, mothers who prefer to work near their residences and communities or remotely located talent even in far-off villages are now a talent pool for companies big and small. This transition represents a significant opportunity for Malaysia’s talent pool and those seeking to relocate here to tap into the nation’s low operational cost and high liveability factor. This evolution occurs without companies needing to establish physical offices, further reducing overheads.
Summary
Having navigated significant shifts highlighted by events like WeWork’s downturn, the coworking industry marked the end of one business model and a strong focus on another. As the industry adapts, it embraces a future prioritizing long-term stability and profitability while simultaneously creating value for businesses and the broader economy. This stable environment enhances business productivity and creativity, benefiting customers and companies. This eventually contributes to national economic growth by fostering entrepreneurship, attracting foreign investments, creating jobs, and establishing robust business community centers everywhere.
Stephanie Ping is the Chief Executive Officer & Co-Founder, WORQ Coworking Space. Stephanie is a highly accomplished entrepreneur with a strong academic background and a wealth of experience in both technology and real estate. She graduated in the top 5 percent of her class at Stanford University, where she earned a BA in Economics and an MS in Management Science and Engineering. With 14 years of experience in the United States, including a key role as Head of Business Development and Investor Relations at Axis REIT, Stephanie combined her knowledge of technology and real estate to launch WORQ, a leading coworking space and real estate innovation company in Malaysia.
Her inspiration was drawn from the vibrant startup community she experienced as both an undergraduate and graduate student at Stanford University and she envisioned creating hyper-localized communities at each WORQ site. Stephanie’s mission is to revolutionize the real estate industry in Malaysia, with a vision to create a world where people prosper by working together.
In 2019, she was honored with the Malaysian Venture Capital Association’s Outstanding Female Entrepreneur Award. Under her leadership, WORQ has achieved significant recognition, securing nine prestigious awards, including the esteemed TechNode Global ORIGIN Innovation Award for Best Community Builder. Stephanie Ping’s journey is a testament to her dedication to innovation, community-building, and making a positive impact in the real estate industry and beyond.
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