Analysis: WeWork potential to become the next big corporate travel buyer-intermediary

Coworking is no longer for freelancers and startups. The likes of WeWork are amassing massive scale by partnering with the corporates. This gives them negotiating leverage on corporate travel buying.
— Luke Bujarski

Coworking is for corporates

The coworking model is quickly working its way into the global corporate DNA. What started with freelancers and startups has now caught on with global enterprises. As the big get bigger, they will need help to stay agile in how they source and manage their global workforce. The likes of Regus, Knotel, and WeWork are stepping up to the task.

WeWork has stricken the word “coworking” out of its vernacular all together. The preferred term is now flexible office solutions, or flex spaces. We call these players flex space outsourcers. The concept of office space as a service is not new. Regus, which is part of IWG Group, is the largest with over two million global members in its community.

Agility, Distribution, Scale

The difference now is that the corporates have caught on to the unique value prop that these entities bring to the table. Over 30 percent of WeWork’s total member base are from large companies.

Agility, distribution, and scale are the three big forces here: Agility in their ability to quickly scale up or down according to market shifts and favorable business climate, without incurring the heavy capx and opx of leasing and managing office space out right. Likewise, dealing with market uncertainties. Brexit, for instance, is a recent example of how politics and political instability expose large corporates to risk.

Read analysis: Amazon WeWorked Its New York City Expansion Strategy 

Distribution in their ability to source the best talent in an ultra competitive and fast-paced climate for tech development.

Scale in terms of the ability of companies like WeWork to source and negotiate value-added services on behalf of the wider community. This element is the newest attribute transforming the space.

These three factors have incentivized the corporates to aggregate flex offices and have helped companies like WeWork scale at a rapid pace. At the current rate, we anticipate that WeWork could nearly double its membership base by year’s end 2019.

Current and projected WeWork Membership Base

Source: Company records; LUFT calculations

Source: Company records; LUFT calculations

Regus is the oldest and biggest player, with a global community of over two million members. The company is a legacy feature with its beginnings in the early nineties. WeWork has captured the public’s imagination by adding three elements to the proven formula that Regus has established: Office culture as a service; the acquisition of prime real estate in key urban areas; and application of technology to optimally design spaces, but also in terms of building community.

Web 2.0 is a game changer

A big priority for WeWork right now is its app. A recent added feature is its skill share feature which is basically a jobs board for WeWork members only. Imagine, a freshman engineer or coder straight out of Stanford need only purchase a WeWork hot desk, and wait to get scooped up by a startup or corporate of her choice. The corporates love this because it offers a new channel for talent acquisition. Note, this is still early days for the WeWork app. We will see other services and elements built into it. Having a captive member audience means that they can leverage size to “buy in bulk”.

The flex space outsourcer model has risk built into it. Down cycles leaves them exposed to long-term lease agreements. The dot.com bust in the early 2000s pushed Regus to declare bankruptcy twice. The entry of corporates will insulate them to a greater degree, since down cycles tend to hit small businesses harder. Value-added services and leveraging the built-in community will play into the revenue diversification strategy.

Conceptual rendering of cross-pollination within the captive WeWork ecosystem

Scale Matters

Buying travel in bulk is common practice in the corporate world. Enterprises regularly leverage their size to negotiate preferred rates with hotel brands and airlines. Note, this is our view - that the likes of WeWork stand to aggregate that demand to put further pressure on the chains.The ability of flex space outsourcers to scale and build captive communities is augmented through the use of technology. And these are still early days.

 Relative size: Employers to Members

Trajectory

JLL, a global real estate consultancy, estimates that as much as 30% of total office space will be occupied by flex operators with 10 years. Our calculations show that 30% of the U.S. workforce  translates to roughly US$40 billion in corporate travel spend. Currently, six percent of office space is occupied by flex operators which includes the full mix of configurations i.e. the big FSOs, smaller independent operators, and corporate incubators.

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