It's fair to say 2020 has been horrendously unkind to both office space and those who invest in it. Since the coronavirus pandemic really took hold back in March, demand for office space has waned tremendously, as most employers sought to bring their workforce remote. Even now, months later, many employees are still doing their jobs from home, and a number of major companies, like Google (NASDAQ: GOOGL), have announced their staff will remain remote until well into 2021, if not beyond.
All of this is bad news for office buildings, but co-working spaces are by no means immune to the impact of the pandemic, either. In fact, WeWork has seen a decline in revenue since the pandemic kicked off, so it's employing new tactics to attract and retain tenants -- namely, discounted rent.
WeWork is getting desperate
Co-working spaces are subject to the same concerns as traditional office buildings when it comes to avoiding the coronavirus. Packing people together in any indoor environment increases the risk of the virus spreading, so many individuals and companies who would normally use co-working spaces are instead opting to hole up at home -- leaving investors to worry.
In fact, WeWork has taken a major financial hit since the pandemic began. In August, it announced its sales dropped by about 20% between the first and second quarters of 2020. And its troubles only underscore the difficulties the entire co-working space is experiencing right now.
In an effort to drum up revenue, WeWork is offering some tenants a major discount on rent -- up to 50% off, in fact. The goal: Entice clients to sign longer-term leases. WeWork's business model has always been flexible, allowing tenants to stay on month-to-month agreements or letting them sign leases with terms as minimal as two or three months. WeWork needs to secure an ongoing income stream while it and other players in the co-working field ride out the pandemic and its aftermath.
What is the future for co-working?
While co-working may seem doomed in the near term, WeWork's move is actually quite strategic. If WeWork generates just enough revenue to stay afloat for the next year or so, it and other co-working businesses may see a huge uptick in demand once the pandemic concludes and restless workers are desperate to stop doing their jobs from home. Similarly, once the U.S. economy busts out of its current recession, tenants may be in a stronger position to sign extended leases, whereas now, they may be skittish to commit to any sort of longer-term financial arrangement.
Therefore, while WeWork's rent discounts may reek of desperation, they're a necessary concession at a time when demand for any type of office space really isn't there. With any luck, those discounts will entice a large enough number of renters to utilize co-working spaces in the near term and protect investors' bottom line, even while the pandemic continues to rage on.