Office Space Demand and WeWork’s bankruptcy protection. What’s happening?
What is bankruptcy protection? (USA context)
As per Investopedia, this is bankruptcy protection under Chapter 11 which is filed by businesses.
Chapter 11 Bankruptcy
Businesses often file for Chapter 11 bankruptcy, with the goal of reorganizing and remaining in business. Filing Chapter 11 bankruptcy allows a company the opportunity to create plans for profitability, cut costs, and find new ways to increase revenue. Do read the full detail and explanation in investopedia.com here.
Briefly, this meant that the business believes it could make a comeback and just needs some time to sort things out. That’s why it is asking for court protection from being forced to pay all its debts and thus making it unable to turn the business around.
WeWork filed for bankruptcy protection
I read a very interesting article about WeWork in an Article in bbcnews.com. Some salient points from the article on WeWork. WeWork was the largest tenant of office space in NewYork and London and they have filed for bankruptcy protection.
The concept was for a space to work for those who wanted more than a coffee bar but less than an office. It was not the first. Regus (now IWG) was founded in the late 1980s.
WeWork was founded in 2010 where the conditions were perfect.
Commercial premises had emptied out as the financial crisis saw even some of the biggest businesses fold. Landlords were desperate.
There was an army of laid-off workers trying to find a way to rebuild their careers and thanks to mobile technology could work anywhere.
Rock-bottom interest rates meant you could borrow to fund expansion cheaply.
And investors with FOMO – fear of missing out – were prepared to pay almost anything in case they missed the next Amazon, Google or Facebook.
Investors pile in, including one of the world’s biggest tech investors, Softbank, pumping the value up to $47bn (£38bn) over the next seven years.
Even as WeWork continues to expand into over 20 countries, the company was losing £200,000 an hour.
WeWork was in fact playing a game that has proved dangerous time and again.
Buying long and selling short. That meant buying up huge amounts of long-term office space leases in prime locations and hoping that you can find enough short-term tenants to cover your own expenses, plus a profit.
The article is long and has a lot of great details. Please do read it here: Article in bbcnews.com.
Office Space will always be needed
Many years ago, everyone was telling me that office space is no longer needed. Everyone would prefer to work from their own homes instead. I wish to tell everyone again that when it is business, then it is business. Period. How many of us would want to discuss and sign a multi-million Ringgit business deal on a table inside a cafe where people are walking past the table every other minute? Or even to start a discussion
Or… would you want to drive to someone’s condo unit, park the car and then go up to his / her unit to discuss business deals? Even if you are a guy and not a lady? Even if the condo has a reception area, will you be sitting at the reception area, discuss business details as strangers walk past your discussion? Or showing slides on your notebook and always having to watch if someone else is also watching the screen?
I could tell you more examples but office space is definitely needed and people are definitely going to be going back to work in the office. More flexibilities for working at home is certain but working in office for most people is a REALITY.
As for why then WeWork is filing for bankruptcy protection, do read the BBC News article instead. The writer has managed to capture a lot of sufficient details. We need to understand that businesses may thrive, businesses may die because circumstances do change. This is the real world that we live in. Yes, I continue to believe in office space. Cheers.
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