In 2018, WeWork Is Coming To Manage Your Office

In 2018, WeWork will be pushing a new business line that could radically alter the nature of its business and its risk profile.

People obsess about WeWork's $20B valuation and the way it is fraught with risk. The risk is a result of the inherent liability mismatch of flexible office companies; WeWork and its peers take out long leases on space and then let it out short term to their members, leaving them exposed if those members decide to leave.

But what if WeWork could earn those fees from members without having to take the leases? The company would be a different, far less risky prospect.

That is the idea behind “Powered by We,” a concept WeWork developed in 2017 for larger companies, which it is now looking to push more widely.

Essentially, instead of a company taking space in a building owned or leased by WeWork, it will pay WeWork to manage its existing space for it. For bigger clients, WeWork might even embed staff on site to manage buildings.

WeWork is betting that the elements that have allowed it to grow rapidly — technology, design and a philosophy that tries to make offices a better place to work — can be transposed onto the existing portfolios of big companies, and that these companies will pay it for the service.

“Much of our rapid growth can be attributed to the processes we use to build locations and the proprietary tools we’ve built in-house,” WeWork Managing Director for Europe, Israel and Australia Eugen Miropolski told Bisnow.
 
“We are specialists in this field, which means we can gain economies of scale in our supply chain that typical enterprises cannot," he said. "We are a vertically integrated company, so whether we are building out spaces on our own leases or on a different company’s property, we can still deploy our tools and gain significant benefits from our supply chain that we can then pass through to our large-scale enterprise members.”

Those big companies are a huge focus for WeWork — there are only so many freelancers and startups out there, whereas the world of corporate real estate offers a big pie for it to take a bite from. There are 30 million office workers in the U.S., according to the Henry J. Kaiser Foundation, most of them working in offices owned and leased in a highly fragmented market that WeWork wants to be at the forefront of consolidating.

Miropolski said Powered by We is part of WeWork’s enterprise business line that caters to companies with more than 1,000 employees. While giving no specifics, he said Powered by We has around 20 deals globally in the pipeline. Enterprise customers make up 25% of its total membership and is WeWork’s fastest-growing market segment, growing by 370% from its creation in Q3 2016 to Q3 2017.
 
Miropolski does not say it expressly, but with Powered by We, WeWork is inherently going after some of the fee income currently hoovered by the property outsourcing divisions of big firms like CBRE and JLL, and which have become an increasingly large part of their revenues.

“This industry has evolved in silos, which means that many different groups are responsible for a single company’s workplace experience," he said. "Brokers find, landlords lease, architects design, general contractors build and companies occupying the space are responsible for activating and creating an employee experience that is meaningful and impactful."

So why does WeWork think companies will pay it to manage their space? A lot of it comes down to technology and data. The proprietary systems WeWork has built or adopted can measure how people use office space and what they want in minute detail.

One of its partners, Comfy, allows members to control their physical environment, such as how warm their office is, through an app. Proprietary system Stargate tracks details regarding each and every real estate project, down to the square foot, like who is using which areas and when. Spacestation tracks details about members and their companies so WeWork can provide them with individually tailored membership packages and perks.

As is the case with all big tech companies, the more users feed information into these systems, the more efficient and accurate they become. The more WeWork knows about what people want, the better it can figure out how to deliver it to them.

“Right now, we use these programmes internally, but are working to develop these platforms so that enterprises can manage their spaces in a similar capacity,” Miropolski said.

Then there are the ways design and psychology intersect.

“Psychology is embedded into all aspects of our design,” Miropolski said. “Hallways are a bit narrower so that you’re more likely to engage with people as you walk by. We’ve designed an open-format staircase to double as meeting space so that you can have a stop and chat with your colleagues when you pass each other on the stairway. We use a lot of natural light and materials so that our spaces feels more comfortable and homely. Psychology has been important to WeWork’s design from the beginning, and we continue to learn and refine our design tactics as we grow and learn more from our spaces.”

There is also something intangible WeWork can provide when it manages space for a big corporate occupier: a philosophy, the feeling that staff are being put first. In a world where companies are trying to work out how to negotiate and adapt to a world that is rapidly changing, that can also be valuable.

“One thing that we know leads to happiness in all aspects of life is a sense [of] belonging and support, a sense of community,” Miropolski said.

Companies want staff to feel that sense of community, and believe that they care about it. WeWork wants to create that community, and help companies show they care. It helps companies generate loyalty and drive in staff in a disloyal and distracted world.

For WeWork, the happy byproduct of this is they might not have to sign all those onerous leases. If Powered by We catches on, it will be another way to justify its sky-high valuation, or push it higher.