UK markets closed

Comment: WeWork makes even less sense in Covid crisis. Softbank is right to do a runner

JIM ARMITAGE
REUTERS

Welching on a deal is never a good look, but sometimes you just have to do it.

Take the situation at WeWork. The shared offices group took London by storm, buying up more leases than anyone and driving up prices for everyone else.

Now, having had a near death experience last year after the failure of its stock market float, it is in a desperate dash for cash. Japanese investor SoftBank had pledged to put in $3 billion but has today reneged on the promise. Cue howls of indignation.

The truth is, you’d be stark raving mad to put a cent into this crazy business. The rational move for any investor is to run screaming for the exits (by the pool table and barista).

WeWork’s business model was a disaster at the best of times. Rent office space on overpriced long-term deals then sublet it to high-risk start-ups on short term leases. Why not throw on some petrol for good measure?

With the world in Covid-19 lockdown, how many start-ups want to renew those short term leases now? How many will go to the wall in the looming recession?

It’s not just London that’s a disaster in waiting. WeWork is exposed to the same flu-freeze in New York, California, Paris, Madrid, Mumbai.

WeWork likes to point out that its clients aren’t all start-ups. Many are multinationals like HSBC in London, using them as overfill offices. Maybe, but as anyone in property knows, big corporates are the most aggressive clients on the planet when it comes to negotiating office space.

Softbank, it may not be dignified, but you’re right to bow out.