WeWork’s East Coast Head On How It Is Adapting To The Hybrid Office Market
As WeWork seeks to recover from the coronavirus pandemic and turn a profit after going public, the coworking company has been pushing a pair of new products that represent a departure from its traditional office subleasing model.
The offerings are designed to increase the daily occupancy of its coworking spaces by giving members more flexibility to use the most convenient location for them without having to make long-term lease commitments. WeWork has reported strong growth from both membership models — WeWork On Demand and WeWork All Access — in the D.C. area and across its portfolio, and its executives say they show the direction the overall office market is heading.
WeWork On Demand allows customers to pay as they go to access WeWork's coworking spaces without having to make a monthly commitment for private office space. The rates start at $10 per hour or $29 per day, and they allow office workers to take advantage of office space when their work-from-home setup isn't cutting it. WeWork All Access comes with a monthly membership that allows customers to use any of WeWork’s spaces and the amenities that come with them.
Executives are hoping the offerings will boost WeWork’s bottom line following a tumultuous two-year period for the coworking provider marked by a failed IPO, a pandemic that upended its business model and forced some competitors to close, a widespread trimming of its portfolio and, most recently, a merger with a SPAC to become a publicly traded company.
In an interview with Bisnow, WeWork Atlantic Territory Vice President Errol Williams said the services take advantage of the hub-and-spoke model companies are now employing in their return-to-work plans, wherein businesses lease their main office in a central business district but allow their employees to access space closer to the suburbs where they live.
"You may have 200 employees and get a WeWork office that can accommodate 100 employees but have All Access passes for all employees," Williams said. "Which means sometimes they will all come into the office, but they all have the opportunity to use different WeWork spaces across the D.C. Metro, across the entire U.S. and the world."
The company reported 60% quarter-over-quarter growth for All Access in its Q3 earnings report, from 20,000 members to 32,000 members globally. WeWork declined to share the total number of members using the On Demand service, but a spokesperson said its membership has grown at an average of 52% month-over-month in the D.C. market since launching one year ago.
The most recent occupancy numbers suggest the strategy is working particularly well for WeWork's offices located outside of the traditional central business district. Out of 12 current locations in the D.C. area, WeWork said the spaces with the most members using its On Demand service are 1701 Rhode Island Ave. in Dupont Circle, 1201 Wilson Blvd. in Rosslyn and 1775 Tysons Blvd. in Tysons.
The company reported 56% occupancy across its portfolio as of Sept. 30. It said that was up from 50% at the end of Q2, but demand experienced a downward blip in the middle of Q3 caused by the delta variant. Williams said occupancy has been trending up as the delta variant subsides, as more people receive vaccines and as cities pull back restrictions, such as D.C. lifting its mask mandate Monday.
“Delta definitely cooled things off slightly,” he said. “And we're starting to see now, as companies get their head around returning back to the office, we're starting to see that increased activity again.”
Williams spoke with Bisnow Monday about how WeWork is recovering from the pandemic and how its new offerings are improving its overall bottom line. He oversees all of the company’s East Coast markets outside of the New York area, but this conversation focused largely on the D.C. Metro area.
The interview has been lightly condensed and edited for clarity.
Bisnow: I'm interested in this On Demand service that you launched in November of 2020. In the midst of the pandemic and many people still working from home, why did WeWork decide to begin offering this pay-as-you-go-type service? And how has that helped you over the last year as you have recovered from the pandemic?
Williams: If you think about WeWork pre-pandemic, the main offering was the private office. And that was the area that most companies and individuals interacted with us was through a private office membership. We had a product called hot desks that was not really a big push for us. And what we've seen, obviously, over the last 18 months or so is a need and a desire to interact in different ways. And so, obviously, we will still have the private office as a major way for companies and individuals to interact and to be part of the WeWork community. But we needed a product that addressed this growing need for people to work in different locations and just to have more flexibility and more options for how to connect with us. And so On Demand is one of those. It is a way for everyone to be part of WeWork, to use the WeWork product and the benefits without actually being a member of WeWork. And so you know a bit of how it works. But as it says, it's on demand, you book through the app, and starting at $29 per day for the space or starting at $10 per hour for conference rooms, anyone can just download the app and book WeWork space truly on demand. And they can do that in many different locations on the same day if that's a need. So it just created and introduced a lot of flexibility and an additional option for people.
Bisnow: And it seems like it's been growing over the last year. WeWork shared data that in the D.C. market, it's grown at an average of 52% month-over-month since launching. Why do you think this service has achieved that level of growth? And what does that growth say about the type of offices that people are trying to use in today's market?
Williams: It was and is the right product at the right time. If you think about what was happening 12 to 14 months back, a lot of people were in month six or seven of working from home. We weren't even that hybrid yet; they were just trying to figure out how to make work-from-home work. And that just doesn't work for very long for many people. It just depends on what you have going on at home, what your home situation is, what your space situation is and whether or not you find the need to collaborate and start working with other people.
And so it was just the right product for this shift that we have now where, yes, people are working from home and that is a part of how you're going to just put together your workweek. But what we have seen is that you need time at home, you may need time in your corporate office and you need a third space, you need time somewhere else. And On Demand allows you to book that space and a space that has community member support. It has amenities, it obviously has the core things that you need to make work, work, right? The WiFi, the printing capabilities. And so it's a really productive space that you can all of a sudden book, and what's also working for it is, I mentioned earlier, the flexibility that you have to determine your location.
We've seen our highest-use locations are 1701 Rhode Island in Dupont Circle, 1201 in Rosslyn and 1775 in Tysons Corner. Not surprisingly, those locations are not in the core CBD. And while we do have strong usage in the core CBD, you generally find this On Demand has been really effective for locations that are likely closer to where people live outside of the core urban areas. So that's consistent with what we see in other markets, and we see it here in D.C. as well. So location flexibility is also a big part of why it works.
What it says about where we're headed and the future of work, I think, is that this idea of flexibility is going to be really important and continue to be more important as time goes on. We're seeing that people like the idea of potentially just being able to select a few days before, maybe the day before, maybe the day of, the location they want and where they'd like to work, and this is an attractive option for them. We obviously also have another product called All Access, which is for people who may see themselves using the space more often or have a more consistent pattern of how they'll use a WeWork space, but On Demand, it's truly the peak of flexibility and optionality for people who are interested in office space.
Bisnow: So you mentioned those locations. I'm curious, are the locations in the Dupont Circle, Rosslyn, Tysons, in addition to being attractive for On Demand users, like you said, are those types of locations doing better generally from a private office standpoint? Are more people looking to work in those types of locations than the central business district?
Williams: I'll speak specifically about D.C., but I tell you, I see this consistently across markets as well. It's not even that they're doing better, because we are seeing strong performance in these what I called very, very large suburban markets. They're not traditional suburban, but these very large, outside of the core CBD, we are seeing strong performance in them, but it's honestly not that it's better than our CBD. What we're seeing is just different companies, honestly. You're just seeing companies that have more of their workforce outside of the CBD find that these locations are attractive. And consistent with what I see in other markets, you've heard about this idea of hub-and-spoke because it was a phrase that started earlier this year, the idea that companies would take locations in the core urban CBD but then supplement that with a space outside of the CBD. That's definitely true, and we do see that happening, where companies find that either using WeWork to create this spoke or using WeWork for both the hub and the spoke is happening. But the other way that hub-and-spoke is coming to life is through All Access/On Demand, where a company may take a WeWork space in the CBD, they may have their own space in the CBD, but then what they'll do is they'll provide All Access passes to their members that allow them then to use any WeWork location, which generally ends up being the spoke and being in these locations outside of the core. That, I think, is another way that hub-and-spoke is coming together.
Bisnow: You've touched a couple of times on this All Access offering, and it's a monthly subscription, and you can use any of the various locations but you don't have a private office within a specific location, right?
Williams: That's exactly right.
Bisnow: And I saw that in the earnings release for Q3 that there was also significant growth in that offering on a portfolio-wide level. Are you seeing that growth specifically in the D.C. market? Is that a product that's resonated here, locally?
Williams: Yeah, extremely well. And what we've seen with All Access is you have individuals that will just purchase it, much like how an individual would use On Demand, but they would purchase the monthly subscription, the monthly membership instead. But you also have companies that will purchase On Demand as part of their overall WeWork membership. And so that's where All Access does differ slightly from On Demand, is we do see more companies that are saying, ‘I will take a private office space, and in addition to that, I will add All Access passes for my employees.’ And so you may have 200 employees and get a WeWork office that can accommodate 100 employees but have All Access passes for all employees. Which means sometimes they will all come into the office, but they all have the opportunity to use different WeWork spaces across the D.C. Metro, across the entire U.S. and the world. And so the main difference I see in how this product has been used is individuals are using On Demand, companies are using On Demand, but companies are really using All Access as part of the flexible real estate solution. And this was not an option that was available to them 12 or 18 months ago.
Bisnow: Back in March, WeWork announced a partnership with the D.C. government. And part of that was a month-free trial for the All Access membership. And you also offered discounts for private offices of various lengths depending on the commitment that the companies were making. That was eight months ago or so. How successful has that partnership been in generating new business for WeWork? Has it helped increase your D.C. occupancy?
Williams: Yeah, I'll say two things on that. A big part of it was for WeWork and the city to just come together to promote people being able to return to the office and feel that it was safe to do so, right? And so we talked a lot about the things that we were doing in our WeWork spaces to make sure that it was safe to return and that people could feel comfortable doing so. So a big part of it was just to help get the message out. We have seen D.C. occupancy increasing since then. And in general, as vaccination rates go up, as people feel more comfortable returning to the office, we generally have seen that, but we have seen the occupancy improve since then. And I would credit at least some of that, definitely, to that increased visibility and that partnership with the city and us working together to help make sure that people in the D.C. Metro felt safe returning to the office. I think for everyone, we saw increased activity before delta. Delta definitely cooled things off slightly. And we're starting to see now, as companies get their head around returning back to the office, we're starting to see that increased activity again.
Bisnow: What types of tenants are you seeing provide the most demand right now? Is it smaller companies? Is it larger companies doing this hub-and-spoke model? What is the general profile of your tenants, your members, today?
Williams: I'll tell you what has been, I guess, encouraging and reassuring is that we're seeing a lot of variety in the D.C. market. I think if someone doesn't know D.C., they would think the base is primarily nonprofit, government, etc. And that's actually, we're not seeing that level of homogeneity, like we're seeing real diversity in our membership base. We have large tech that's taking space with us, we obviously have a lot of nice small, medium businesses taking space with us. And of course, it's D.C. and Virginia, so you definitely have the nonprofit and government organizations. But what's been encouraging is just the variety and variety that you might not naturally have expected in D.C., and especially on the tech and larger tech enterprise side.
Bisnow: You mentioned the delta variant and how that kind of threw a curveball for some of your tenants. And I was curious what sort of impact you saw when the delta variant was peaking? Were you seeing people pull back on their On Demand service or pulling back on coming into the office? Or how did that affect y'all?
Williams: Yeah, I mean, honestly, I think the main impact was just on this, the sense of momentum, if that makes sense. I mean things, tour volumes, were really picking up in the midsummer time frame. And for a couple of months, once delta became a real issue, that just got cooled down, and it cooled down just with the uncertainty that companies had back then about what was next. Now that we are effectively five months past that peak of uncertainty with delta, that feels like it's something that's behind us and a period that companies have sort of sorted through and now are back on track with whatever their return-to-office strategies are. But it created a couple of months of uncertainty about what the future really held, and so that just caused things like tour volume, momentum, just to slow down a bit.
Bisnow: It sounds like you're saying that's behind you a little bit. So what are you seeing now? The company as a whole, WeWork said its occupancy was at 56% at the end of September. Is that around what you're seeing in D.C.? Or is it higher or lower than the overall average?
Williams: Yeah, so now that we're a public company, there's a bit of information that I can't give out about market-specific performance or any forward-looking statements, but what I will say is, consistent with what we're seeing in other markets, consistent with what was released in our earnings report, there's good momentum in the market right now. D.C. just lifted their mask mandate. And so that generally, in some other markets, has been a real turning point for companies to feel safe to return. We follow the government's cue, I think a lot of companies follow the local government’s cue on when it's safe to return to the office. And so I believe our members who keep a keen eye on indications like that, they view decisions like that as a very positive step toward returning to the office.
Bisnow: A lot of companies have pointed to the new year as the time when they might start bringing more people back. You get through the holiday season when people are traveling and then in January, Q1, are you expecting to see an uptick in occupancy going forward as we get into 2022?
Williams: What I do expect is consistent with how, in general, markets have followed an increase in vaccination rates, decrease in hospitalizations, as comfort in return to the office, I think we'll see that in D.C. I think we'll see that in other markets, that as those trends continue, people will feel more comfortable and continue to return to the office and we'll see improvement. But I won't forecast what our occupancy will be. But we have generally seen this trend hold that return to the office happens, and then that the flexibility that WeWork offers is a really compelling offer in the market, that we see flexible space outpacing traditional space in terms of leasing activity, and so I can expect to see that to be a continued trend in D.C. and other markets.
Bisnow: So over the last year, as you've recovered from the pandemic and been increasing your occupancy and revenue, have there also been measures to reduce expenses at locations in the D.C. area and overall? What types of cost-cutting measures have you employed during this period?
Williams: If you look at our earnings report, we've talked a lot about WeWork just transforming our business and focusing on our core and correcting our balance sheet and just being a strong company going forward. The thing I'll say about D.C. is you saw us, for the D.C. Metro areas, that you saw us focus on our core. You saw on the news several months back that we exited WeLive in Crystal City. That's just an example where we pulled back on things that were not our core flexible office space product and made decisions that definitely reduced costs, that definitely helped us to focus on our core business and move the market, move WeWork closer to profitability.
Bisnow: I think there were seven in total. How did you decide which locations to close and which to keep open?
Williams: So our focus is on, one, ensuring that we have buildings in the right locations for where we know our members want to be, and two, is to ensure that we are creating a profitable market layout. And you'll see the locations that we closed were locations where we were still able to serve our member base with existing buildings and, in many cases, higher-quality buildings. Several locations that we exited were older assets, and the factors that go into that really are, can we still serve our members with the locations that are remaining? And what's the right way for us to optimize this real estate footprint in a way that just gets us closer to and pushes us toward profitability?
Bisnow: So as you look ahead, when do you expect WeWork might start growing again, in terms of number of locations, in the D.C. market? When do you expect that you might add some new spaces to your portfolio?
Williams: Yeah. We are always looking for new locations where our members will be and that seem to be in demand for individuals and companies looking for flexible office space, right? We have 7272 Wisconsin in Bethesda opening later next year, late Q1, early Q2 of next year. So it's not that we have paused by any means our growth. We're always trying to optimize the portfolio. Sometimes that means we close a location, as we did earlier this year, and sometimes that means opening new locations, as we will do early next year. And so I don't think we should view that as we're not looking for growth opportunities. We're always attempting to ensure that the D.C. Metro portfolio that we have out there is one that we feel our members are asking for and need to provide well-balanced but plentiful options for members.
Bisnow: Do you have any last thoughts? Anything else you want to add?
Williams: This is a market that I am extremely excited about. It's one of our largest markets in the Atlantic, with a lot of growth potential and a lot of changes happening in it in terms of companies that are finding D.C. being an attractive market. So I'm excited about this market. I think all of WeWork is excited about this market.