News that WeWork has entered the leasing business in the US has caused a stir among UK agents.
However, they are divided over the likely impact this would have on their market if WeWork tried it on this side of the Atlantic.
The flexible workspace giant has launched a new division, WeWork Space Services, which aims to provide leasing advice to small- and medium-sized tenants. This will involve helping them find new office space both within their own property portfolio and outside it.
The pilot – which launches in September in New York – will be run by Jason Bauer, the founder of now-defunct US bakery chain Crumbs.
Although WeWork has no current plans to expand the service, London – its second largest market – would be an obvious next move.
Some UK agents and investors suggest it would represent “direct competition” in London, while others say it would only capture a small part of the market.
One senior real estate private equity company source says: “I think this is quite interesting – they have disrupted the provision and servicing of office space in leasing predominantly. Now, potentially, they will disrupt the agent and broker market.”
Commercial challenge
Agents say WeWork could also attempt to challenge the commercial relationships held in the UK.
Typically, in the UK, both the tenant and landlord pay for their own respective agents. In contrast, in the US, the landlord tends to pay fees to both the tenant’s agent and their own agent.
The senior private equity source comments: “They could just go to a UK landlord and say, ‘I have a tenant.’ The landlord will go to their agent and say they have a tenant coming through, will you split your fee? That could start ball rolling and maybe the agent would get squeezed out.”
A London markets broker adds: “In the UK the way it would work is they would go to someone like LandSec and see if they would pay them to introduce them to a tenant. The landlord would then either pay them the fees direct or not.”
However, a WeWork press spokesperson said the company is “confident” the new service line will not affect its “strong relationships” with brokers.
“WeWork Space Services is intended only for the small to medium business segment, the overwhelming majority of whom generally approach WeWork directly. Furthermore, it will not represent tenants if they already have a broker,” the spokesperson said.
Meanwhile, others suggest WeWork Space Services will not challenge the broker market with its focus on SMEs, defined as companies with up to 250 employees.
A senior director and regional team head said: “It makes sense they want to focus on the SME market, but I don’t think that it would have much bearing on our market.
The London markets broker adds: “I don’t think they would turn the whole market upside down. The question for agents is how much business do they have where occupiers are sitting in serviced office space and looking to move? This is just a fraction of our business.”
Enterprise model
If Space Services does eventually expand to the UK, agents say it would only be a real threat if it serves larger clients.
One central London office agent says Space Services would become “direct competition” if it began representing tenants with requirements for more than 10,000 sq ft. “Less than that would not be economical for us anyway, but WeWork’s clients have got bigger.”
Another City office broker agrees that WeWork could become a direct competitor, given it already has access to larger corporates through its enterprise division.
“WeWork has taken so much space in London they can’t fill it with two men and a dog anymore. This is demonstrated by their enterprise model, where companies take short-term leases with them.”
The company began operating an enterprise division last year, dealing with clients with more than 1,000 employees. While it made its name renting shared office space to start-ups in buildings with beer taps and ping-pong tables, it is now designing private offices for more ‘mature’ clients.
WeWork’s enterprise clients accounted for close to a third of the operator’s revenue, according to figures it released last September, and the number of large clients it worked with nearly doubled between June 2016 and 2017.
So far, the company’s enterprise client roster includes Facebook, Microsoft and HSBC.
In addition, it is understood WeWork is looking at partnering with Amazon in Manchester. The online retailer is looking at taking around a lease at Hanover Square, with the flexible office company designing and managing it.
If WeWork does tread on broker territory, UK agents may consider simply not working with them.
The central London office agent says: “If they compete with us, I won’t take them on as a client. They wouldn’t get the support they are currently getting. Up until now, they have been happy to pay agents like us large fees for introductions which don’t involve a lot of work so I can understand why they are doing this.”
While agents are bracing themselves for WeWork to capture at least some market share – it remains to be seen whether this will become more of a significant threat over time.
But, as one agent concludes: “I wouldn’t underestimate a $20bn company.”
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