WeWork competitor questions model of fast growth
WOTSO has offices in Sydney and Melbourne. Photo: Supplied

WeWork competitor questions model of fast growth

The chief executive of WeWork’s local competitor WOTSO says he doesn’t agree with the disruptor model of the global co-working businesses and has questioned the rapid expansion of overseas outfits.

WeWork had done a “spectacular job on educating the world on what co-working space is all about”, WOTSO CEO Stuart Brown said.

But he said he didn’t agree with the narrative from the global co-working businesses that they were a disruptor in commercial real estate.

“We want to be a service provider and not compete with the big landlords and that’s why we stay in the suburbs, Mr Brown said. “My view is that collaborative workspace is still very good, but we focus on the suburbs.”

Mr Brown said some operators had expanded very quickly and that it was hard to keep going at a sustainable pace.

His comments come as WeWork last month pulled a float on the New York Stock Exchange, valuing the company at $US47 billion ($69 billion) and founder Adam Neumann stepped down as chief executive.

WeWork’s Australian subsidiary posted a $7.2 million loss for 2018, according to accounts, and its lease commitments in that year were $920 million, about a third of which was due within five years.

There have been reports in the Sydney market that WeWork has put on hold plans to lease about 20,000 square metres in Market Street. However, the company has confirmed it will lease 11,000 square metres of space at 320 Pitt Street in a 12-year deal.

WOTSO, which has 17 sites across the country, is moving towards a public listing once it decouples from Sydney-based fund manager BlackWall, which launched the brand in 2014 and has funded its growth.

“WOTSO is a highly scalable operating business,” said BlackWall director Seph Glew.

“Its network now has the capacity to generate over $30 million of revenue so we feel the time is right for it to stand alone.”

One expert in the industry, who declined to be named, said WeWork had expanded very quickly in Australia and questioned where it would go from here.

“There were plans to keep expanding here, but it looks like that could get harder if the head office pulls in the purse strings,” the source said.

“It takes time to build up a business, probably about three years, but WeWork has exploded onto the scene and become a household name, almost overnight.”

Landlords have offered incentives in their lease contracts to help co-working business, but WeWork’s largest landlord, Dexus, said it had “no plans to expand their footprint with us at this stage”.

Ted Bauman, senior research analyst and economist at Banyan Hill Publishing, based in Manhattan said WeWork was likely to scale back its growth aspirations. “The company is going to have to slow down and consolidate its existing operations before it adds new sites to its office leasing network,” Mr Bauman told The Sydney Morning Herald and The Age.

“We’re starting to see rumblings of concern about the whole potential systemic risk that WeWork could pose to the commercial property sector in cities like Sydney if it were to default on its long-term lease obligations in an economic downturn.

“WeWork keeps telling everyone that it’s profitable on an individual site basis and that the only reason it loses money is that it’s growing so rapidly. If it wants to IPO, it’s going to have to prove that, and that means slowing down growth.

“Given that WeWork was depending on loans contingent on a successful IPO to continue its expansion plans, the company may not have the money to grow.”

“The bottom line is that the major concerns about this company have to do with its viability as a business model. It’s going to have to pause now and prove that before it can resume growth,” Mr Bauman said.

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