WeWork plans to raise rates in stronger markets

Dive Brief:

  • Flexible office space provider WeWork will look to raise rates in markets where occupancy is above 70% such as Raleigh, NC, Nashville, Tenn., Austin, Texas, Palo Alto, Calif. and Miami, Fla., CEO Sandeep Mathrani said in the company’s second-quarter earnings call Thursday.
  • The company has not yet seen layoffs in the fintech sector, which includes some of the companies that occupy WeWork space, translating to a drop in occupancy levels, Mathrani said on the call, characterizing the current office climate a “tale of two cities” in which prime “A assets have pricing power while B assets are leasing up quite quickly but are more price driven.”

  • “I think it’s early to see that,” Mathrani said, in answering a question as to whether the company has seen any potential impacts on occupancy in the wake of the recent job cuts. “…but we’re seeing encouraging signs that flexibility is more the name of the game.”

Dive Insight:

Financial executives, already faced with soaring inflation across many fronts and rising wages, are keeping their eyes on how to manage real estate costs in a market that has been disrupted by the acceleration of hybrid work. Cutting or keeping office spending flat by fitting more workers into the same office space is one tactic emerging as a longer-term budget bright spot for some finance chiefs.

Companies like WeWork are hoping to benefit from increased demand from employers and workers for flexibility around where they work. Smaller and even medium-sized businesses are “actually doubling down on space with us,” Mathrani said, adding that WeWork space is a less expensive option given inflation’s impact on what it would cost for tenants to build out their own space. “They’re consolidating, moving into WeWork locations, optimizing their real estate.”

However, he said that the company is seeing large enterprise clients evaluating their space needs, noting that it’s too early to tell how that will “pan out.”

In the second quarter the New York-based company reported physical occupancy at its system-wide locations rose to 72% from 68% in the first quarter and 59% for the period ending Sept. 30 2021. Meanwhile, the company’s revenue rose 37% year-over-year to $815 million in the quarter while WeWork reported a net loss of $635 million in the quarter, a 31% improvement year-over-year.

In May WeWork appointed its third CFO since March 2020, naming former NCR Corporation CFO Andre Fernandez as its new finance chief.

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