$10 billion. That’s the valuation put on co-working operator WeWork when the company raised $433 million a couple of months ago. Up from the $5 billion valuation when they raised $355 million just one year ago. Operating from 35 locations, they lease about 3,500,000 sq ft of space at an average rate, it is reckoned, of $40-50 per sq ft. Against this it is estimated, given their membership rates and occupancy levels, that they are taking in circa $100 per sq ft across their portfolio.
In contrast Regus operates 2300 business centres across 106 countries and is valued today at circa $3.9 billion.
What are we to make of this? Should one just scoff and mutter ‘This is madness – dot com bubble 2’? 100 times earnings. For someone that just sub-lets space?
Well maybe, maybe not. A full real estate cycle will give us the answer to that. The really interesting thing to consider though is why are they being valued at this level, as that tells us much (perhaps) about the future of work and the office market.
There are two key justifications, both functions of how technology is changing the economy. First, the rise of the contingent worker. Intuit, in their 2020 Report, suggest “contingent workers will exceed 40% of the (US) workforce by 2020” and it is unlikely that this will be very different in the UK. Cloud computing, the changing nature of work, and hyper efficient networks will lead pretty much to where Charles Handy suggested with his writings on the Shamrock Organisation. In which case, that is an awful lot of people who will be routinely working for more than one employer, and so not going to the same corporate HQ each day. However, as we’ve discussed before, just because you do not have to go to a workplace to do work anymore, that does not mean you do not want to go somewhere.
And that brings us to the second key justification for WeWorks valuation; Brand. What they have done brilliantly is create a brand around their co-working spaces that has the potential to become a generic term. Think vacuum cleaner, think Hoover. Think taxi, think Uber. Think a space to work, think WeWork. “WeWork is a platform for creators” is their tagline, and frankly it is genius. Within the tech world they have huge mindshare. If you are a young company, or an established company desperate to show how much you get the zeitgeist, then WeWork simply springs to mind when you need space to work.
In startup parlance they have achieved perfect ‘product/market fit’. They have not branded their properties, they have branded their UX, their user experience. This is the reverse of how the traditional real estate industry works, where developers tend to brand their individual buildings, and do so with physical attributes in mind. Branding the what is analogue thinking, branding the why is required in a digital world.
This post was first published in the Estates Gazette 8th August 2015