Why It Matters: Unfortunately for WeWork and its office space business, a global pandemic, lockdown and restrictions is no model for success. Occupancy rates in buildings plummeted last year amounting to the company’s multi-billion-dollar loss.
However, it’s not like WeWork was thriving beforehand. It also lost 3.5 billion in 2019 and the company laid off thousands of employees over the past year.
- It only got worse once Covid-19 hit. WeWork’s occupancy fell to 47% at the end of 2020 from 72% at the beginning of the year.
And somehow still, WeWork is looking to the future. WeWork has told investors it expects occupancy levels would reach 90% by the end of next year. It also projected more than doubling revenues to around $7 billion by 2024 after doing $3.2 billion in 2020.
A Final Word: WeWork is in talks to merge with a SPAC called BowX Acquisition Corp. “The two sides are trying to line up $1 billion from institutional investors as part of the deal, which would value WeWork at $9 billion, including debt.”
WeWork’s business model generally arbitrages long-term leases against short-term leases and requires a high occupancy rate to make profits over the rent (or interest) they pay. Furthermore, it has a fully fixed cost base (the cost to run it at 10% occupancy versus 90% is very similar).
Thus, it’s probably the last business model I’d want to own before the pandemic. It has similar challenges to the hotel industry, except that people are eager to get back to recreational travel, rooms are easier to socially distance than desks, and work-from-home is proving to have some staying power.