A handful of thoughts on the ballad of WeWork – the role of Space and Time on real estate

I have been avoiding discussing WeWork here. As a topic, it makes for a thrilling spectacle and there is no end to the angles a person could take to provide their opinion. But this also means that plenty of others are addressing the many facets of the rise, fall and rebirth of the most recent CRE Technology unicorn posterchild. But even with this, people can’t help but seek out more on the subject.

My personal thoughts on the topic drift to the tangents of what is going on.

• What lessons can CRE teams take away from WeWork’s model (given that so many had tried so desperately for the past few years to mimic it in every way they could)?
• Why did so many in CRE buy into what WeWork was doing when it was obvious to so many in the industry that they were going to struggle because of all the same reasons we struggle as CRE experts?
• Where do we all go from here?

But I want to start with that last question because it feels the most fascinating to me.

Where do we all go from here?

WeWork has been discovered to have not been as forthright as they should have been about their finances and business model. This isn’t all that surprising but even still, this is the company that almost single-handedly popularized the single-seat real estate license model within the industry over the past many years. They have a straight-line role in the current shape of our industry.

With their discovered business model challenges, there will be pushback from many quarters about how this means the agile working model was broken. But this is a false narrative as ideas are different from a particular implementation of the idea. Agile may still prove to be the single best model for most real estate operations, but it may simply not be a world-beating model as a standalone for-profit business idea.

Many corporate real estate professionals look to service providers for inspiration and direction for their internal strategy. However, there is a major difference between the strategies that work well when implemented by a 3rd party and those implemented by an internal corporate function. Many things that work for a for-profit, real estate specialty business would never work for an internally delivered solution, and vice versa.

WeWork’s struggles prove nothing about the effectiveness of many Workplace Experience and design concepts. But we’re about to see many pundits that try to say otherwise. It’s easy to play the reactionary role when something as significant as the current WeWork scenario is playing out.

Why did so many CRE professionals buy into what WeWork was doing?

This topic gives me special joy because it’s so straightforward.

WeWork did a few things really well that caused corporate professionals to fall in love with them.

1. They made the industry seem sexy and strategic. WeWork made CxOs pay attention to real estate in a new way. Real estate professionals got a seat with business leaders (sometimes for the first time ever) because everyone wanted to know more about this WeWork company and their model.
2. They threw money at companies. One big challenge for most real estate functions is the budget for new things. Because so much of our services are provided by brokerage firms as part of commissions, real estate budgets do not always cover the ability to do new things. Going to WeWork was like doing a capital project without needing to get capital. WeWork made their prospective real estate partners feel loved and like they were getting a steal.
3. It seemed like WeWork was doing all the things the real estate professionals wished they could do. WeWorks space was hip and cool with all kinds of amenities. The model took into account working from home and agility. Their space was in the right part of the city. Operationally, it seemed like everything they wanted and financially they didn’t need to get in the weeds because it didn’t seem to impact them.

There are more, but this is the crux of it. WeWork provided a sales pitch that appealed so strongly to real estate professionals that it was hard to not dive in wholeheartedly. Separately, WeWork was pitching themselves to finance people differently than they sold to the real estate people. That disconnect is what led to the separation of valuation from business reality.

What lessons can we take away?

Finally, we get to some lessons because, realistically, this WeWork situation is a great lens into why corporate real estate is so different from other industries.

From a business model, WeWork is basically real estate-as-a-service. This is comparable to platform-as-a-service in the IT space. As a business, you purchase the ability to give your employees access to be productive. The difference between the two examples is what makes real estate so different:

Real estate (desks) is not something that can be added/expanded/flexed up or down easily. It is fixed in time and space. There is major capital that must be spent by someone to get it setup. You can’t just set up a new office like you do a data center. Time and space are the biggest constraints to changing your real estate.

It’s the role of time and space that is central to the story of real estate and WeWork. WeWork tried to act like a technology company that was not strictly bound by the constraints of time and space. Amazon can spin up an additional 1,000 servers for minimal additional costs. WeWork could only spin up an additional 1,000 desks for significant additional, long-term costs. Those 1,000 Amazon servers could be accessed and used by any customer in a region the size of a continent (or the world). The additional 1,000 WeWork desks could only be accessed and used by license users within an ~50-mile radius.

Time and space.