Corporations are re-thinking how much space they need as work-from-anywhere and hybrid schedules replace daily commutes and the 9-to-5 office grind. WeWork, meanwhile, went from pre-pandemic high-flyer to a company bitten by scandal that today is trying to right itself amid an uncertain economy.
Co-working only represents a small portion of landlords’ tenant portfolios, typically below 5%, according to data from real estate firm Jones Lang LaSalle. But more than 40% of companies polled by JLL said they anticipate using flexible space more often in the future.
Companies including tech giant Microsoft and investment behemoth BlackRock temporarily used co-working spaces in Atlanta while building out their own offices, said Brooke Gothard, executive vice president at JLL Atlanta.
Researchers with JLL expect co-working to continue to grow as companies both large and small try to navigate the post-pandemic office market and current economic headwinds.
“The common theme is just flexibility,” she said. “You’re buying flexibility.”
WeWork slashed about 100 locations before it went public in October 2021 and earlier this month said it would close about 40 “underperforming” outposts to save money.
The new Interlock location, which opened last week, is about one-third the size of what WeWork announced in 2018, before the pandemic upended the office market. But it is the second new WeWork to open in the Atlanta area since 2020. The office was also delayed by the pandemic.
Errol Williams, WeWork’s senior vice president of community and asset management, told The Atlanta Journal-Constitution that expanding into West Midtown gives his company 11 locations overall in metro Atlanta, and one in each of the most desirable areas of the region.
“We’re in Alpharetta, we’re in the Perimeter area, we’re in Decatur, we’re in Ponce City Market and now we’re in the westside,” he said.
WeWork doesn’t own office buildings. It leases office space from landlords and then designs its offices and subleases space to individuals, small companies and even Fortune 500 corporations, typically on short terms. Members can also use WeWork locations in other cities.
The company rocketed to stardom behind its then-CEO and cofounder Adam Neumann. But its initial public offering was delayed in 2019 over questions about Neumann’s management and the company’s prospects for profitability and the cofounder was ultimately let go. Since then, the company, which had one of the biggest footprints of flexible office space in the country, has cut costs, weathered pandemic lockdowns and tried to chart a new course.
The company has seen its stock tank, and the startup-turned-household name is still trying to turn a profit. The company reported a $568 million loss in the most recent quarter.
Co-working space, like the broader office market, went through the ringer during the early days of the pandemic. Unlike traditional offices which usually have leases that span several years, co-working companies typically offer short rental periods, including daily or as-needed options.
WeWork’s occupancy dropped from 79% at the onset of the pandemic to 47% by the end of 2020, according to a recent JLL report. Occupancy rebounded to 72% by the end of the second quarter of 2022, and WeWork representatives said bookings in the Atlanta area have increased throughout the year.
“We’re really optimistic and excited about the growth of WeWork in this city,” Williams said.
During the third quarter, overall office vacancy in metro Atlanta climbed to 17%, up from a low of roughly 13% before the pandemic, according to real estate service firm Colliers International. But leasing office space hasn’t gotten cheaper. The average rental rate for Atlanta office space was $30.58 per square feet at the end of the third quarter, the region’s seventh consecutive quarter of increases, according to Colliers.
Gothard, the JLL executive, recently worked out of the West Midtown location and said the appeal of co-working spaces is how many options they give employers.
Offices with a lot of amenities in walkable, entertainment-rich parts of cities have been recovering quickly, she said.
“They want there to be an experience coming to the office,” she said. “They want it to feel like it’s an exciting place to go and not like some boring dungeon that you work in.”
‘There will always be a place for it’
WeWork has nearly 470,000 square feet of space in metro Atlanta, second only in co-working space to rival Regus, according to data from CBRE, a commercial real estate firm.
Moderna, the Massachusetts-based biotechnology company known for its COVID-19 vaccine, is leasing roughly half of the West Midtown WeWork office. Moderna has its own common areas, access elevator and office space separate from the rest of the floor, which is designed to be shared by individuals and smaller companies.
Gothard said some major employers have adopted WeWork’s hub and spoke model — having multiple locations in a single market that employees can use transiently — but added that it’s expensive and risky, especially in uncertain financial times.
“Construction prices are outrageous right now, and it’s hard to go build out a space. Any landlord that’s going to give you an allowance to build out a space is going to require a long-term lease,” she said. “You’re basically making a seven-to-ten-year decision on the hub and spoke model, but you haven’t really proven it yet.”
Many companies use co-working offices as temporary solutions to explore options before making a long-term commitment. Gothard described shared workspaces as “a Band-Aid” that “buys them a little more time to try to figure out what’s happening.”
“There will always be a place for it, but I don’t think it’s ever going to just take over the world where everyone’s going to go looking for it,” she said. “But in Atlanta, it’s not like we’ve oversupplied co-working.”