Bloomberg Línea — The strategy of launching new office spaces tailored to customers is no longer part of the plans of WeWork in Latin America, with the company turning its focus to a marketplace model, called Station, in which buildings, hotel spaces and other co-working spaces can connect to the WeWork application to be rented by people and companies that need offices.
With this model, the global shared workspace giant intends to grow sustainably in the region.
Globally, WeWork is still posting losses and is not expected to meet space occupancy targets by the end of 2023, and Fitch Ratings downgraded the company’s credit rating to CCC late last year, citing operational and financial challenges.
But in Latin America, the picture painted by regional CEO Claudia Woods is a brighter one.
“When we started seeing Brazil and Colombia hitting the 80% occupancy mark, naturally the next question was: how do we grow? It would be by inaugurating other buildings, but this type of growth no longer makes sense at this time in the market. Taking a building and doing a construction project while we wait to receive members, we’re not going to do that anymore,” Woods said in an interview with Bloomberg Línea.
This diagnosis, combined with the perception of the demand for flexibility - “the employee wants to work from anywhere, it’s not a benefit for him if the company says ‘you can work either in Faria Lima or Paulista’ - was the basis for the conception of the marketplace in order to expand the supply of spaces.
Woods said that the marketplace connected to the WeWork brand platform should reach more than a 1,000 addresses in 76 cities in just three months, including in smaller communities.
How the Latin America model differs
According to Woods, the model in Latin America is different from the global one because the company has autonomy, and the marketplace model is unique to the region.
The operation of the Latin American countries that are under Woods’ direction works as a joint venture between WeWork and SoftBank, which was agreed upon in September 2021.
For this reason, she said that, unlike other companies that see Latin America as just another operating region - as was the case with Uber, a company for which she was in charge of its Brazil operations - at WeWork there is the independence of not having to follow a global strategy.
“We report to a board, we don’t report to the global structure,” she explained.
As much as WeWork is classified as a technology company, the company’s operation is local: operating buildings, elevators, air conditioning, lighting, and even coffee, which is different from a company like Google that operates in the cloud and in which each country operates a centralized product, according to Woods.
“In our case the product is not centralized, on the contrary, it is extremely regionalized,” she said.
According to Woods, in the company’s search for accelerated growth, WeWork tried in the past to have a sole global strategy, but without understanding that each market needs different attention.
WeWork has adopted this joint venture strategy in several regions. “Ultimately that strategy is proving to be very successful if you look globally at the results of those regions with that vision, with that autonomy, and with the ability to follow unique strategies. We’ve been able to deliver a much more significant result,” she said.
For Woods, in 2022 WeWork saw “the world return to face-to-face”, going from 30% occupancy to about 80% of occupied spaces in Brazil. “Many companies are still in a moment of experimentation [of the hybrid model] and that was extremely positive for our business.”
In 2022, WeWork saw a 27% growth in membership.
The following interview with Claudia Woods has been edited for length and clarity:
Bloomberg Línea: What was 2022 like for WeWork?
Claudia Woods: Post-pandemic we started looking at flows in the buildings, it’s an important metric to look at together. There’s no point in me seeing that I’m growing in membership and people aren’t going into the buildings. The company will pay, but if no one uses it, it’s a matter of time before they cancel the contract. We also saw the number of access to our spaces grow 23-fold in 2022.
And we saw that people were not going to the office. But now we are starting to see all the metrics going together, 27% growth in the number of members and 23-fold growth of access to the buildings. The result of this is an occupancy rate that in Latin America is at 73%, led by Brazil with 82%.
Where is the business working best in the region?
Brazil is very important in this result, representing more or less 35% of revenues. Mexico is also more or less that, and the sum of the other countries, which are Colombia, Argentina, Chile, and Costa Rica, make up the other 30%. Today the company is already bigger than it was before the pandemic.
The company grew during the pandemic. There were already buildings in full swing, with contracts signed, and we inaugurated buildings either during the pandemic or in some cases during 2022, as was the case in Costa Rica, for example.
A very careful job was done throughout 2022 of working with our major partners to optimize. In some, we increased [office space]. In some we reduced and exchanged them for others. It was a work of consolidation, of understanding that we are in the right place at the right price.
What can you expect from the business this year? Is the hybrid work model here to stay?
We had the opportunity to start an innovation journey. We launched at the end of last year our marketplace, which was launched in Brazil as the first market. Now we are planning the expansion. It is a project that only exists in Latin America. In the United States and Europe it may not have the same importance.
When we started to see Brazil and Colombia hitting the 80% occupancy mark, naturally the next question was: how do we grow? It would be to inaugurate other buildings, but this kind of growth no longer makes sense at this time for the market. Taking a building and doing construction while we wait to receive members, we are not going to do that anymore.
In our last survey, 97% of people said that the office space is a space for connection. In other words, it is no longer a place to sit and answer e-mails.
We are starting to see companies wanting to offer offices as an employee benefit. Many of our conversations that used to be with HR people are now with the CEOs.
I am part of three boards of publicly traded companies in Brazil and this is a meeting agenda: how are the companies going to come back? The risk of creating a culture, etc. And we started to see a demand among companies for employees who don’t want to come back to the office every day, but also don’t want to work from home every day.
That process prompted the company to launch a pandemic pass so that people could pay for the day used [the Workpass, a benefit that companies and individuals can contract to access any WeWork or Station partner, even if they don’t have an office within WeWork].
WeWork only has offices in São Paulo, Rio de Janeiro, Porto Alegre and Belo Horizonte. But the employee wants to work from anywhere, it is not a benefit for them if the company says “you can work either in Faria Lima or in Paulista” [in São Paulo].
From adding the time to inaugurate a building in the traditional model with this demand for flexibility came the idea of the marketplace, in which any co-working space can connect. Even a hotel that has a meeting room, an auditorium, can connect.
We have spaces today in the largest slums in Brazil that have co-working connected inside our Station model.
There are workspaces and there is this demand everywhere. We launched the Station model at the end of last year and today we already have more than 1,000 addresses in three months, in 76 cities.
Is there a standardization of the Station’s environments? Anything that identifies it as WeWork?
That’s what we are learning. At first, there is a list of mandatory criteria: there must be Internet with a minimum speed, a space with a table, chair, coffee etc. A standard check-list of this experience, but there is no standard that says it has to be table ‘X’ or chair ‘Y’ or that the sofa has to have perfect ergonomics.
Obviously, it is the care we take within our own spaces, with a whole science behind the colors, the lighting, the distribution of the furniture, the ratio of meeting room to table, this is all part of our forums.
Initially we will have a ranking in which we will point out if that co-working is level A, B, or C, but the idea is that the community itself feeds this.
As more than 50% of our traffic is organic, many people see the chance to offer the space through WeWork as a solution to offer co-working with other prices and options.
The truth is that not everyone needs a super fancy office all the time. It will depend a lot on what the employee needs to do, if they accept a co-working space that has a lower ranking, a slightly lower comfort level, but that is closer to their home.
Companies are really starting to be able to bet on this ‘office anywhere’ benefit as part of the range, in the same way that they offer the transportation voucher to their employees.