WeWork Closing 40 US Flex Space Locations

Coworking pioneer WeWork is closing 40 US locations it says are “obsolete” or in markets with “oversupply” after reporting losses totaling about $1.8B for the first three quarters of 2022.

The company did not specify the overall size of the office footprint it intends to vacate but estimated in a Q3 earnings call it will pay about $200M over the next 15 months to exit the leases on spaces it is giving up, hoping to generate cost savings estimated at $140M in EBITDA.

Despite a surge of demand for flexible office space as more companies embrace hybrid work patterns—and a 24% improvement in revenue, which grew to $817M—WeWork reported a net loss of $629M in Q3.

WeWork has lost more than $12B since the end of 2018, according to a report in the NY Times.

CEO Sandeep Mathrani tried to put the best face on the company’s plan to shrink its US office footprint, suggesting in the earnings call that many of the spaces to be vacated didn’t meet the company’s design criteria or have become “obsolete.”

“Demand didn’t come back as swiftly as we thought, so we decided that to be profitable—and sustainably profitable—we should close locations that are obsolete,” Mathrani said, in the earnings call.

The CEO said that most of the office closures will happen this month, with a few taking place in January. The average term remaining on the leases is 10 years, and the average occupancy in the locations being vacated is about 42%, he said.

WeWork reported that its membership rose in Q3, but the company’s consolidated physical occupancy rate remained flat at 71%. Despite the need to ditch its surplus space, Mathrani expressed a bullish outlook on the flex office sector.

“The headwinds in the office sector are really benefiting the flex model. We see rollover of rents coming of the larger tenants. They’re shifting to consolidate into tighter spaces and moving to flex, so we’re actually seeing an advantage,” he said, in the earnings call.

JLL’s Future of Work Survey of more than 1,000 corporate real estate decision-makers recently found that 43% of firms plan to increase investment in flex space through 2025, GlobeSt. reported.

CBRE’s Occupier Sentiment Survey results showed that while only 17% of U.S. occupiers said flex space is a significant portion of their office footprints today, 59% said that it will be significant within the next two years.

A joint WeWork and Cushman & Wakefield survey found that people in WeWork offices currently spend 40% of their work time in the flex space but want to increase that to 55% in the future.