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A simple business model of leasing large, coveted office space on a shared basis; a peak valuation of USD 47 billion; a mission to “to elevate the world’s consciousness”. These factors seemed to be the ideal ingredients for a successful start-up with a social conscience – WeWork. But, one look at a filing from the industry-leading unicorn as part of its initial public offering process, revealed mounting losses and an ambiguous corporate structure; factors that lowered the company’s valuation by more than half – and derailed its plans to go public. This came immediately after the company’s CEO stepped down, amid rising pressure from investors and the board.
WeWork currently has multiple locations across 125 cities. Interestingly, Abu Dhabi is WeWork’s only location in the GCC with a single building, and Dubai’s first location is expected to follow. In comparison, countries such as Singapore and Hong Kong, which are often compared in terms of the business environment to Dubai, have at least 10 WeWork buildings each.
More than half of the UAE’s employees work remotely every week, according to a 2018 study by the International Workplace Group (IWG). With increasing government encouragement for small and medium enterprises, and efforts underway to become a digital economy, there is tremendous potential for the co-working and shared office sector – and it’s still waiting to be tapped.
So, what exactly is working for co-working?
The ‘space-as-a-service’ model
With real estate both scarce and expensive in central business districts (CBDs), many new and emerging start-ups across various sectors, from technology to retail, are faced with the burden of unsustainable capital requirements and operating costs, shrinking their chances of finding the ideal office space. Due to these budget constraints, property owners also find it difficult to find a single tenant for longer terms for their properties. In such a situation, the concept of providing office space as a service promotes flexibility and affordability to businesses, supporting them in their fragile yet crucial phase of growth. At the same time, property owners are also able to avoid long periods of vacancy by engaging short or long-term tenants, depending on requirement and availability.
The expanding gig economy
Ride hailing apps like Uber, short term property rental platforms like Airbnb, and food delivery services such as Deliveroo, are all examples of disruptors who make up the ‘gig’ economy. Today, an increasing number of individuals are choosing to operate on a freelance basis, taking up ‘gigs’ for increased flexibility and autonomy. For companies, this might mean not opting for permanent employees, and therefore, no perpetual need for space. But, for freelancers this means having to find a space to operate, where they can meet and collaborate with like-minded individuals without stressing about factors like infrastructure and location.
By offering office space on a daily or monthly rental basis, co-working companies can effectively cater to this transient demand from individuals and companies who need a temporary place to work, but do not wish to make an investment. With technology at the heart of this global digital transformation, co-working space providers also offer robust IT solutions that ensure quick and uninterrupted connectivity.
Community and collaboration
A large portion of the workplace population today comprises millennials and the Gen Z. These generations place significant importance on collaborative ways of working, where ideas are freely exchanged with people from different fields and cultures. Exuding a casual and fun vibe, we now see more workplaces incorporating open formats and hot desks, where communication is organic and highly encouraged.
Current market situation
Whilst changing working styles and a young demographic are fuelling the expansion of co-working, a cyclical factor that is benefitting the sector within the UAE is the current real estate market situation.
Dubai and the other emirates continue to face downward pressure on both residential and commercial rents, with an increasing amount of supply expected to enter the market across all segments. Landlords are therefore struggling to find tenants for large spaces, even those located in prime areas with convenient accessibility. These spaces are ideally suited for the shared workplaces that co-working companies aspire to create, complete with a range of offerings such as breakout areas, relaxation zones and innovative meeting rooms.
There is no question that there is demand for this type of workplace offering, which is evident from the early success of companies like WeWork. Their tech-style brand, funky fit outs, and perks like yoga classes and beverages on tap are certainly appealing not only to the gig economy but also to large tech corporates such as IBM and Microsoft who have taken space. The challenge therefore remains to convince investors that the negative profits of such ’unicorns’ are due to aggressive expansion, but like others who have proven before them, namely Amazon, there is solid business potential there.
It now remains to be seen if WeWork’s expansion into other markets, including the UAE and wider GCC, will continue as planned for now. If not, other players are ready to command a higher share of the pie.