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What does the Trustbridge WeWork deal mean for the flexible workspace market?

At the beginning 2020, we anticipated that the overall demand from Asia’s flexible workspace operators would be less than half the level recorded in 2019. However, as businesses resilience is tested, we saw flexible workspaces adapt to the changing environment by looking to differentiate their products; incorporating more technology into their offerings and working together with occupiers and landlords to produce mutually beneficial real estate strategies.

As the news breaks about WeWork’s USD 200 million follow-on investment in China, we examine what exactly happened and its impact on the market.

What was announced?

WeWork, one of the largest flexible workspace operators globally, announced on 24 September a USD 200 million follow-on investment in WeWork China led by Trustbridge Partners.

What really happened?

WeWork have sold control of their business China to a group of investors, led by Trustbridge - the group of investors are essentially acquiring the franchise to WeWork China. According to The Wall Street Journal, WeWork will license its name and services for a fee, retain a minority stake and a board seat in the China business. Trustbridge’s Michael Jiang has been named acting CEO with immediate effect.

What is the impact on the market?

It seems inevitable that there will be a repositioning of WeWork China, with further cost cutting almost certain to include a rationalisation of the portfolio with deal restructuring and more locations exited.

The pricing of the deal will set a benchmark in the flexible workspace sector and is likely to see valuations adjusted downwards for any investment or M&A activity.

The deal is a net positive for the market as it provides a robust platform from which WeWork may transform its China business. WeWork remain an excellent flexible workspace operator and therefore stablising their position can only be good for all stakeholders in the office market.

What does it mean for asset owners?

WeWork have exited a number of locations across Mainland China and Hong Kong SAR in the last 12 months and they are likely to exit more locations in the short term as Trustbridge review the portfolio and restructure the business to reduce costs in an effort to transform the business.

Given the turbulence of the past 12 months, in contrast to hyper-growth between 2017 and 2019, any landlord thinking about bringing flexible workspace into their assets were unlikely to call WeWork any time soon. In the medium term, this deal provides a foundation to re-establish WeWork as a viable operating partner for asset owners and rebuild relationships which will be key to future growth.

Asset owners will likely approach with caution and require greater security in any deal with WeWork, but the repositioning may provide some comfort, subject to performance in the next 12 months.

What does it mean for occupiers?

The flexible workspace sector has only two truly global operators, IWG and WeWork. IWG remain the largest operator in the world with over 3,300 locations, compared to WeWork’s approximately 800 (circa 100 of which are in Greater China). However, WeWork has a presence in most major markets and is the only operator who can get close to IWG in terms of coverage.

Greater China is an important market for many enterprises and therefore WeWork stablising their position is a positive for occupiers. Alongside strong local and regional operators, IWG and WeWork can provide a consistent product at scale.

In recent months we have heard concerns from occupiers over WeWork’s long term plans and this deal provides some comfort that WeWork can continue to serve their members in Greater China.

What does it mean for operators?

Operators currently looking to raise investment or in M&A discussions are likely to see their valuations pegged against this deal, which may mean some downward adjustment.

For better or worse, some stakeholders in the office market follow news on WeWork and view the sector through a polarised lens of this operator; positive positioning will benefit operators across the sector.

Should Trustbridge be successful in transforming the business then operators may see renewed competition for investment, space, and members in the medium term. However, we are unlikely to see a return to the hyper growth of 2017 to 2019 meaning WeWork will be just another player in the market, a major player, but one grounded in reality and abiding by market dynamics.


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Nigel Smith

Managing Director

Managing Director's Office | Hong Kong

香港

施禮賢是高力國際(香港)常務董事,負責香港業務的日常營運,致力發掘戰略性機遇,推動與客戶的互動,從而獲得新的業務商機。

施禮賢於2015年加入高力國際。自上任以來,他透過結合發表具建設性見解的研究、創新的營銷策略以及交付切合客戶所需服務的強大力量,大大擴展了香港的業務。

施禮賢不單積極推動多元與共融,並鼓勵支持企業和社區就推動性別平等和職場健康的倡議。

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