76 Business The EconomistSeptember 28th 2019
21firms now account for about 5% of office
space in London and New York. Most of
their clients are small businesses. But
hsbc, a big bank, will occupy 1,100 desks in
WeWork’s new 6,300-desk London branch.
The landlords can still count on the co-
working companies themselves to sign
long-term leases. But they worry about the
prospects for these leaseholders. Trouble
at WeWork, which has lost over $2bn since
the start of 2018 and is struggling to show it
has a viable business model, is adding to
the uncertainty. Either way, observes Nick
Wright of cbre, a consultancy, the old
landlord-tenant model is being shaken up.
Life is changing for corporate tenants,
too. Typically, companies with tens of
thousands of employees will own their
headquarters and take out leases for
branch offices. Over time these obligations
are substantial. Among 75 big listed ser-
vice-sector companies in America and Brit-
ain, lease commitments over the next de-
cade or so amount to $146bn. Annual rental
costs amount to $5,000 per employee. Ab-
senteeism and the constant flow of people
mean that just 40-50% of desks are actively
used during working hours. This ineffi-
ciency constantly draws bosses to try to
save office costs, especially in a downturn,
although the reality is that office spending
makes up only a tenth of property and
headcount costs, with the rest going on
workers’ wages. Despina Katsikakis of
Cushman & Wakefield, a property consul-
tancy, warns that such stinting by firms can
have an adverse effect on the wellbeing of
their employees.
To optimise office use without killing
morale, Goldman is therefore giving staff at
its new London building options about
where they work—at unassigned desks,
private rooms and informal hangouts.
Even the bank’s 100 or so partners now oc-
cupy offices that transform into meeting
rooms when they are away. Such manoeu-
vres, the company says, have increased
desk occupancy by about 20%. Even in
places without 22 Bishopsgate’s anti-din
technology, open-plan offices are easier to
bear for distractible employees thanks to
noise-cancelling headphones. As a result,
companies need less space to accommo-
date the same number of workers.
According to the British Council for Of-
fices, an industry body, space per desk in
Britain has fallen by 10% over the past nine
years, to ten square metres. “We don’t like
the idea of animals in pens, but we’ve been
happy to have people in them”, says Sir Stu-
art Lipton, the developer of 22 Bishopsgate.
As companies reach the limits of densifica-
tion, they must compensate cramped
staff—the final group affected by the
changing workplace—in other ways. We-
Work, whose desks are a third smaller than
a typical office worker’s, provides renters
with ample space to drink nitro coffee, con-duct impromptu meetings or play ping-
pong. Offices have traditionally set aside
just 3-4% of floor space for such fripperies.
Occupiers now expect developers to pro-
vide at least double that amount of space.
Staff in Bishopsgate have access to a climb-
ing wall on the 25th floor (see picture on
previous page). Goldman employs “work-
place ambassadors” on each floor, who are
responsible for staff welfare.
Office improvements are designed to
make white-collar employees—and pros-
pective recruits, many of whom expect to
be coddled—feel fitter, happier and, em-
ployers hope, more productive. About 10%
of a firm’s wage bill is lost to sick pay. A Har-
vard University study demonstrated that
improving the quality of air, as Goldman
and 22 Bishopsgate do, can boost occu-
pants’ cognitive function. Access to natural
light has also been shown to improve pro-
ductivity. While a study by Andrew Oswald
of the University of Warwick finds that pro-
ductivity increases by 12% when people are
happier. Unilever, a consumer-goods com-
pany, estimates that $1 invested in its “well-
ness programmes” returns $2.50 to the
company. Goldman says that moving staff
into new offices in other countries has im-
proved their employees’ perception of
their own productivity (it did not measure
actual output).
There is work to be done. A recent
worldwide survey of 600,000 office staff by
Leesman, a data provider, found that 40%
thought their office prevents them from
working productively. Hot desks can be a
curse (see Bartleby). London’s three new of-
fices are not the last word in workplace
management and architecture. But they of-
fer a glimpse of the foreseeable future. 7E
arlier thismonth WeWork delayed its
initial public offering (ipo) after it be-
came clear that the co-working firm would
fetch as little as one-fifth of its latest priv-
ate valuation of $47bn. Prospective inves-
tors began to question its poor governance,
lack of transparency, reckless expansion
and lack of economies of scale. The com-
pany, which has lost $1.4bn in the first half
of this year, desperately needs cash. Public
markets, creditors and venture capitalists,
whom WeWork’s dreamy co-founder,
Adam Neumann, has infatuated for years,
appeared unwilling to hand over any more
unless something changed. This weeksomething did: Mr Neumann agreed to
step down as chief executive. Will this be
enough to avert WeWork’s slide towards
possible bankruptcy? And would its implo-
sion have consequences, other than to
leave its backers out of pocket?
Start with WeWork’s prospects. The
company has around $2.5bn in cash—
about as much as its combined loss in
2017-18. If it continued to burn through this
pile at the current, even faster rate, it would
run out of money in under a year. The resig-
nation of Mr Neumann, whose name ap-
pears 169 times in the company’s ipo pros-
pectus, may be intended to signal a shift
away from his quest for growth at all costs
towards more responsible stewardship of
capital. If that results in smaller losses, in-
vestors may loosen their purse strings. But
this outcome is far from assured. Mr Neu-
mann remains on the board as non-execu-
tive chairman. And a new, humbler version
of WeWork may seem a less appealing pro-
position than his grandiose vision.
A collapse, then, is not out of the ques-
tion. It would be felt beyond the firm and
its investors. First, WeWork’s troubles dim
the prospects for other overvalued startups
and their venture-capital backers, notably
SoftBank (see Schumpeter).
Second, holders of its $669m in junk
bonds might take a hit. Big known ones in-
clude Lord Abbett, an investment firm,
which lent WeWork $44m, and Allianz, a
German insurer, with some $21m in expo-
sure, according to Bloomberg, a data pro-
vider. But $669m is a drop in the $9trn
bucket of America’s stock of corporate
bonds. Any spillover into broader financial
markets would thus be limited.
More troubling, some financiers and
regulators fret that WeWork and fellow co-
working companies may threaten finan-
cial stability. Eric Rosengren, president ofNEW YORK
Would an overvalued office startup’s
implosion pose a systemic risk?Future of the workplace (2)WeWorry
Would you buy stocks from this man?