Daybreak - Why Wework India is moving away from what it knows best — co-working

Episode Date: February 26, 2025

By now, we are all aware of the WeWork story. We know how the company grew to become synonymous with coworking spaces thanks to its lavish network of offices around the world. How these offices were once packed with young techies playing pool and sipping beer. And how, eventually, it all came crashing down. The company, once valued at 47 billion dollars, was brought to its knees.But here in India, the WeWork story has been playing out drastically differently. The workspace provider’s India business is thriving. In fact, it is currently prepping for an IPO. It has managed to get to this point only because it is everything that its global sibling is not. More importantly, it realised somewhere down the line that it’s better to ditch the frills and be a boring office space provider for all sorts of clients, not just the startup crowd. The pivot is now towards managed office spaces. Tune in. Daybreak is now on WhatsApp at [phone]. Text us and tell us what you thought of the episode!Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. By now we are all aware of the WeWork story. We know how the company grew to become synonymous with co-working spaces thanks to its network of lavish offices around the world, how these offices were once packed with young techies playing pool and sipping beer, and how eventually, it all came crashing down.

The company, once valued at $47 billion, was brought to its knees. But here in India, the WeWork story has been playing out drastically differently. The workspace provider's India business is thriving. In fact, it's currently prepping for an IPO. And it's managed to get to this point only because it is everything that its global sibling is not. While the US-based business was known for breakneck expansion and growth, WeWork India took a more restrained and sustainable approach. More importantly, it realized somewhere down the line that it's better to ditch the frills

and be a boring office space provider for all sorts of clients, not just the startup crowd. The pivot is now towards managed office spaces. These are customized workspaces built to meet the specific needs of a single client. For workspace providers, that means bagging. long-term clients. And for clients, it means a tailor-made solution handled end-to-end by a single provider.

The realization did not dawn on WeWork India overnight. In many ways, it was thrust upon it. It was only after a lot of its competitors ventured down this path and started seeing huge success that the company decided to give it a shot. It seemed to have recognized that diversification is the only way forward, especially with an IPO around the corner

and the WeWork legacy weighing it down. But remember, the global company's fortunes are hardly linked to WeWork India Management Limited. Bangalore headquartered real estate developer Embassy Group controls around 75% of the company's shares and manages its operations. So the entire proceeds from the listing will go into the pockets of the shareholders, embassy group and a minority investor affiliated with WeWork's global entity. What's interesting is that so far, WeWork India has really been dragging its feet on adopting the manager office space model. Real estate executives we spoke to explain that the reason for that is simple. We work already has a certain approach, a specific finish and a fixed format.

But the thing is, there is no time for Delhi-dallying. Especially because investors have a clear example of what We-Work could have been if it had made different choices. I'm talking about the relatively new homegrown poster child for co-working spaces, office. Welcome to Daybreak, a business podcast from the Ken. your host, Rahal Philipos, and I don't chase the news cycle. Instead, every day of the week, my colleagues, Nika Sharma and I will come to you with one business story that is worth understanding and worth your time. In the last year, WeWork India has really switched things up.

While it wasn't open to much customization before that, 30% of the new capacity the company is adding now is dedicated to managed offices. Now, if you're a regular listener of this podcast, you may recall an episode we did last year on this industry-wide shift to customized work spaces. It's been driving growth for a lot of companies in the co-working business, including office. In fact, today, 60% of offices' total seat capacity is taken up by managed offices. And like I said before, it's seen a fair bit of success. While WeWork scale is larger, office has a higher proportion of long-term customers, mainly because of its edge in the managed office segment. But the flip side of this particular kind of arrangement is that it tends to blur the

between the job of a co-working operator and a typical commercial real estate business. For startups, co-working spaces offer flexibility in terms of how long they can commit and how many desks they need. But for V-Work, that translates into dealing with more customer churn, meaning customers may leave more frequently because they aren't tied to long-term commitments. Its average customer tenure starts at 23 months compared to offices 33 months, which works in the favor of WeWork India's clients, but not necessarily for WeWork. That's largely because of its lease commitments. It typically signs on buildings anywhere from three to five years. But all things considered, at the face of it, things are looking good for WeWork India, at least on the retention

side of things. It has managed to retain 73% of its customers in the six months ended September 2024. But two years ago, it was doing a much better job. Back then, it had a renewal rate of around 80%. And apart from retaining old clients, WeWork also needs to be bringing in new customers for it to grow. And in that department, the managed office service approach could be a game changer because it could mean high volume deals.

An office executive explained to us that typically co-working clients go for about 10 to 30, maybe 50-seaters, but with managed office space clients, you're looking at 2,000, even 5,000 seats in one go. Clients pay more, and they stay longer. Seems like a win-win, right? Except, the trade-off here is that it will make the office space operators more dependent on far fewer customers.

That's not the only reason V-Work has been dragging its feet. More on that in the next segment. Hi, daybreak listener. I'm Snigda, the co-host of this podcast. Are you enjoying this episode so far? If you are, then could you please spare a few seconds to rate daybreak on your preferred streaming platform, Apple or Spotify, and also please hit follow. We've been trying really hard to beat the algorithm gods

and a little help from you will really, really go a long way and help our podcast grow. Thank you in advance and now back to Rahil. One thing Office has cracked that WeWork is still figuring out is decoding a client's needs. An executive from office explained how it is able to take care of everything from design to compliance for each of its clients in record time. And that's especially important when it comes to managed office spaces.

Office's ability to tap into this business might partly explain why it has managed to outpace WeWork and growth. Based on its performance in the first six months of FI25, office is projected to quadruple its revenue in this fiscal year compared to three years ago. VWorks revenue, meanwhile, has only grown half as much in the same time frame. One thing to consider, of course, is that VWorks' top line is nearly twice that of offices. But what will work in WeWork's favour is that it is not starting from square one. You see, typically, mature companies operating at a larger scale tend to take up managed office spaces. And in these cases, WeWork's global presence could give it a leg up

when it comes to attracting these big-ticket clients. At the end of the day, it is a huge brand with a lot of pedigree. But that said, it does come with constraints. Take its geographical reach, for example. The embassy-backed company operates in just eight cities, while office is present in 18. Over 70% of V-Work's revenue comes just from Bangalore and Mumbai, and that share has only been increasing. WeWork is also in Office's crosshairs on the pricing front. After rolling out a premium offering, Office Gold, in 2020, the company took it up a notch by launching an even more exclusive brand, Office Elite in the September quarter.

While Office Gold is priced 15 to 25% higher than its more affordable flagship brand, Office Elite is 40 to 45% higher. And this tiered pricing model is just another indicator of office's flexibility and its intent to offer something for everybody. Meanwhile, WeWork is and always has been a premium player that wants to remain premium. But now more than ever, as the pressure continues to dial up, It's perhaps time for the company to finally step out of its comfort zone. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos and edited by Rajiv Sien.