WeWork CEO and chairman Sandeep Mathrani on Wednesday addressed challenges facing the global office market, and he hinted at future developments within the WeWork office model.
WeWork has been considering the “next step” beyond offering flexible work spaces, Mathrani said in a prerecorded video shown during DLA’s global real-estate conference in Tel Aviv, suggesting that something can be learned from Uber,the transportation-market disruptor.
The concept of shared economy
Who would have believed that the medallions on the yellow taxis, which were worth millions of dollars, would be worthless today? Uber created this disruption,” he said. “The question is whether we can apply that concept of a shared economy to an office? Can [we tell the client], ‘You will use the office three days a week, and another client will use the same office two days a week’? And the question is, ‘Why not?’ I think we will continue to evolve, and once such an evolution begins, it happens very quickly and will catch traditional property owners off guard.”
Mathrani elaborated on the recent evolution of the office market ecosystem.
In the past, the focus was on long-term leases, buying buildings that provide rental income, raising rent from time to time, according to the market value, and ultimately selling the properties, he said.
“This philosophy, of investors on the one hand and tenants on the other, is gone,” he added. “Tenants want short-term contracts and turnkey solutions, and how do you finance that?”
Due to the shift toward short-term contracts, office-space owners now find themselves in a very different position than 10 years ago, Mathrani said.
“The whole idea of the property owners was that [their leases] were signed for 10, 15 or 20 years, like bonds,” he said. “Therefore, it was also easy to trade these assets. But today, the bond-like feature is gone because contracts are so short,” making the office-space model more similar to that of an apartment or hotel.
“I think the basic paradigm of how we used to invest in commercial real estate, based on our tenants’ lines of credit, is at risk,” he added.
Mathrani, who joined WeWork at the beginning of 2020, after serving as the CEO of real-estate investment giant Brookfield, said the market was currently in a “post-corona” era.
“The pandemic changed everything,” he said. “It changed the way we work, think and collaborate. Shared and flexible workspaces will continue and stay with us. They are even expected to make up 15 to 30 percent of the total office-workspace market at the end of the decade, and this is an industry in which no disruption has occurred to date.”
“In the world before the pandemic, enterprise clients saw shared spaces as nice to have or a kind of benefit,” he added. “However, today, the large business customers want 80% of their properties to be based on traditional rentals and another 20% to be based on the flexible model.”
The interest in having flexible office space is not unique to just large businesses, Mathrani said.
“Small and medium-sized businesses also understand that if they want to be in a good location and attract talent, they must do so through the shared and flexible workspaces,” he said. “And so, all of a sudden, companies like WeWork that provide turnkey solutions have become important. They’ve become a must-have.”
DLA Piper's 8th Israel Real Estate Summit brought together major Israeli institutions active in the global real estate markets and leading real estate professionals from around the world. The annual summit is organized by the DLA Piper Israel group, led by attorney Jeremy Lustman and Naomi Maryles. The speakers provided an opportunity for discussion on the key trends and issues driving change, creating opportunities for growth, investing capital in times of change and digital innovation in the real estate sector.