Analysis

'Economic Interests Trampled the Community Idea': Why WeWork Sold Its Flagship Space to Microsoft

Companies that rent out shared workspaces are multiplying at a dizzying pace, offering not just floorspace but also a sense of community. But what if a tempting offer comes from a huge conglomerate that wants the building?

A  WeWork shared workspace in Tel Aviv, September 4, 2016
Lauren Kallen / WeWork

The launch of the first shared workspace by WeWork in Tel Aviv, at 7 Dubnow Street, in the winter of 2014, was attended by thousands of invited guests and top people in the area of start-ups and venture capital in Israel. The star who outshone them all was the man who was bringing the new tidings to the small businesses of Tel Aviv: Adam Neumann, the Israeli entrepreneur who four years earlier had founded WeWork, which proclaimed values like sharing and community.

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And the idea caught on: Entrepreneurs and freelancers began flocking to the building, which attained occupancy rates of up to 95 percent on average, and the company opened a number of additional sites in the city. Then the unexpected happened. WeWork – which in the eight years since it was first established, attracted some 270,000 renters, in 88 cities in more than two dozen countries worldwide, seeing its market value grow to about $30 billion and in so doing became one of the symbols of the sharing economy – received a tempting offer. It was asked to rent out the 7 Dubnow property to employees of the international software giant Microsoft, in place of its then-current tenants.

WeWork pounced on the opportunity and in June it signed the deal, which is scheduled to go into effect this week. At the company they worked energetically to find alternative arrangements for all the renters in the complex. But, in the process, the delicate fabric and the solid community agenda WeWork had built up during all the years of its existence were reprioritized.

“The company’s economic interests have trampled the community idea on which it is based, but somehow in this incident there haven’t been reports of any casualties or damage,” says a member of one of the workspaces owned by the company. “WeWork is proud of its ability to bring people together and also to manage this community. Because of that, people haven’t liked the change it has made. The company depicts the community as its most valuable card and not cloud services or office cleaning services; something has gone off course there. It reminds me of what is happening with Facebook, which started out with an idea of bringing people together but has become a huge corporation that also serves advertisers. Nevertheless, people continue to use its services.”

‘Not just pizza and beer’

The indication of a possible crack in the idea of the community nature of WeWork’s shared areas happened about a year ago, when the company signed a contract to rent one of its properties in Manhattan exclusively to computer giant IBM. However, despite the seeming change in the business model the company had been offering, people engaged in the area of renting out workspaces were not surprised. According to them, the move by WeWork was perfectly natural: Many companies that rent out shared spaces want to develop and to reduce the risks of the rapid turnover that comes with doing business with smaller companies, start-ups and freelancers. Hence, they aspire to attract corporations that will bring in full occupancy and long-term stability, even if now and then the idea of a community gets slightly battered.

WeWork is just one example of the revolution that has been going on in recent years. Companies that rent out shared workspaces are expanding at a dizzying pace and sweeping up hundreds of thousands of renters. Members of the communities they create feel they are part of something big, an image these companies nurture while shaking off the image of a property management company.

However, according to Israeli entrepreneur Sharon Chen, who founded a shared workspace in south Tel Aviv called Ayeka, “Many of the companies that rent out shared workspaces are simply asset management companies and they have a single agenda: Open as many places as possible, create more and more value and fill the complex with more users. When the companies’ motivation is to fill their spaces with more and more people, the moment someone comes along and lays a fat check on the table, he will have the power. In the past, Microsoft also contacted me,” she adds, “and it would have been the easiest thing to say yes, but I refused. I don’t want to become another chain of offices for rent. Managing a community isn’t just arranging meetings, eating pizza and drinking beer. Rather, it is creating meaning and answering to as many of its members’ needs as possible.”

Chen, who says she has raised $3 million from investors and is hoping to open Ayeka-style spaces in cities elsewhere in the world, believes that in coming decades, the workspaces that will survive will be the ones that adapt themselves to offering a broad spectrum of solutions to their members, especially with regard to aspects of providing a community and social services.

“The market for real estate is changing and some of the increase in a building’s productivity has to do with creating meaning for the asset. It’s not just a building, it’s a service,” says Maor Cohen, founder and CEO of Pickspace, which develops platforms and tools for managing communities and shared spaces. According to him, in the wake of WeWork’s contract with Microsoft for the Dubnow property, the model of WeWork has changed from that of managing a community to managing a building with added value for one company only. “Microsoft already had one out of the four floors in the complex, but they wanted a number of their departments and teams to be working together and to benefit from added value. It will be interesting to see if that really is created in the absence of interactions with people from the outside,” says Cohen.

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At Mindspace, an Israeli company established in 2014 that currently rents out 28 workspaces in Israel and abroad, they say that the demand to vary the services offered to renters began more than two years ago. “You have to understand, it’s a business that started out in a one specific format and has developed in lots of different directions,” says Dan Zakai, Mindspace co-founder and CEO. According to him, “Today giant companies also want to be part of the community. For example, Barclays, a multinational financial services company, wanted to enter the local business market. It rented two floors in our complex on Rothschild Boulevard in Tel Aviv with the aim of feeling like it was in the beating heart of the industry and meeting clients and partners without having to suffer from all the difficulties of being a newcomer. The issue of a sense of community is getting stronger in many areas and people want to be a part of something. It’s became a part of the package that companies are offering in order to attract talent, people who are being fought over in the market.”

Uzi Surkis, CEO of the Be All company, which operates workspaces in Tel Aviv, explains: “The game is changing and companies are looking for a space that will suit their needs in a new employment era. The big companies, too, are interested in networking and want to be in the shared spaces for professional reasons. Not just for the vibe but also in order to develop, to bring in investors and funds or to buy up small companies. In addition, the technology today in many companies is moving onto the cloud, which requires another kind of service and maintenance. The variety of their needs is changing and the real estate companies that deal with offices don’t always know how to respond to them quickly.”

‘An answer to the plague of loneliness’

The intense rate of growth in shared workspaces worldwide indicates it isn’t a trend that will come to a stop any time soon. It is estimated that about 30 percent of the office market around the world will have shifted into the shared-space format by 2022. There are no official figures for the Israeli market, but it is estimated that in Tel Aviv, for example, where give or take 430,000 workers are employed daily, there are about 80 shared workspaces. In Manhattan, where more than 2 million employees go to work each day there are, according to The New Yorker, about 26 such workspaces.

“Shared spaces are creating a trend that is gaining momentum and satisfying the need to belong, to be part of a community. This isn’t going to disappear in the coming decades,” says Naomi Carmon, professor emerita of urban planning and sociology at the Technion Faculty of Architecture and Town Planning. She says that in academia, they don’t see this as a fleeting trend, but rather as a lasting sociological event. “This idea didn’t grow out of a vacuum but rather in its current incarnation, there is a marked change in the perception of a community, which is part of the services that are improving and maintaining quality of life,” she adds.

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“We are seeing that the high-tech companies managing to retain and keep employees are the ones that create a feeling of belonging and identity for them,” she adds. “Therefore, today the place where you work has to provide a broad spectrum of content and interactions. It has to offer as many services as possible to make employees’ lives easier. Physical treatments, spiritual workshops, meetings on art topics and so on. High-quality physical infrastructures that engender human encounters will be a necessity and people will want to live in a physical environment that encourages and enables relationships.”

Despite the success of shared spaces, not everyone looks for relationships in the work place. People we spoke to at quite a few of the more mature start-up companies talked in fact about an opposite process, of having had enough of the “noise” created in the wake of the community bubbles at the shared workspaces.

For its part, WeWork made the following statement to Haaretz: “Large organizations now constitute the motor for the most rapid growth for the company. We are providing services to more than 1,000 large companies around the world in various formats. Our experience in planning, designing, adapting services and technologies and operating our spaces have attracted to us about 22 percent of the workers in the 500 largest organizations in the world. Forty percent of the large organizations and companies say that they have chosen us because they are interested in a more entrepreneurial and creative environment for their employees, which the encounter in the workspaces enables. These encourage employees to be more productive and efficient in their work and also provide answers to their needs and requirements for quality of life and services, also at the workplace.”