WeWork’s New Plan to Get Out Of Its Slump: Change the Lease Terms

A recent shift in the types of leases WeWork is looking for shows the company is trying out new options.

August 19, 2016

According to The Information (paywall), WeWork has started pushing year-long rental agreements, as opposed to the typical month-to-month.

In fact, one New York exec said he was told a full year commitment was the only way he’d be able to secure a spot in one of the company’s four new buildings.

Why the sudden shift for the world’s 9th-richest startup? Two reasons.

Reason #1

WeWork recently cut its profit forecast by 78%, citing building delays. But after scraping company data, Thinknum, a financial analysis startup, claimed an increasing churn rate (number of tenants leaving divided by total number of tenants) was also to blame… and we’re buying it.*

Because how the heck could it not be? As any commercial landlord (which is basically what WeWork is) knows, high turnover rates can be a b*tch.

By locking in customers for longer periods of time, WeWork can smooth out cash flows and not have to worry about acquiring a bajillion new members every 30 days.

Reason #2

While month-long leases are perfect for solo entrepreneurs and small teams, they aren’t ideal for, say, a 20-person company that just got funded.

So that’s who WeWork is targeting with these year-long leases: larger companies. And according to Danny Johnson, a broker for Cushman & Wakefield, they will ideally already be members of the WeWork family.

“The goal is to have a company in the WeWork ecosystem from a five-person startup and grow them into the ecosystem until they’re much larger.”

In other words, they want startups born out of WeWork to expand there, too. And they’re offering entire floors, customized to that team’s exact specifications, as a way to convince them.

Is WeWork changing?

One could make the argument that this shift will fundamentally change WeWork’s role in the overall startup ecosystem.

Because by prioritizing year-long leases (and the companies who can afford them), WeWork could easily see its young entrepreneurs and kegerators replaced by enterprise sales teams and cubicles.

At the same time, if people are willing to pay them 12 months of rent instead of one, why would they say no? Plus, WeWork views this as a “test,” as opposed to a full-blown change in strategy, so the kegs stay. For now.

*Thinknum, who was working out of WeWork at the time, was evicted just days after publishing their findings in a blog post (which has since been deleted).

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