WeWork Moves Into Shanghai's Most Expensive Office Tower: What Changes When Co-working Turns to Big Companies?

WeWork IFC has become better suited to big companies — just like WeWork as a whole.

On April 1, WeWork's fourteenth co-working space in China opened for business, occupying the 15th floor of Shanghai's most expensive office tower, the Lujiazui International Finance Centre (IFC).

In the words of its designer, Huyan Binyu, this is "like opening a WeWork above the World Trade Center in the US." The World Trade Center, the IFC — both stand for the high-end office tower, "the kind of building that doesn't match our WeWork style at all."

It's true that when WeWork was founded, it said its purpose was to give freelancers and startups an efficient place to work. A year in, it had 1,600 members from 600 companies — an average of 2.6 people per company. WeWork used to be a business built on small companies.

Not any more. WeWork says 30% of its new revenue each month comes from big companies. IBM, Amazon, Microsoft and HSBC are all clients. Last year the number of large-company clients doubled — and "large company" here counts only firms with more than 1,000 employees.

Choosing the IFC is itself a result of that shift. There is an Apple store at the tower's base, and offices looking out on the Oriental Pearl Tower and the Huangpu River rent for 25 to 30 yuan per square meter per day — the most expensive in Shanghai, and in China only a little cheaper than China World Trade Center Tower III in Beijing. So the price of a hot desk at WeWork IFC has climbed to 5,290 yuan a month and up, three times the price at any other WeWork space in Beijing or Shanghai.

New clients and a new address have brought a new design as well.

Inside the IFC, WeWork's design has grown restrained, and every new office it opens from now on will take this one as its reference.

WeWork has the whole 15th floor. But riding the elevator up from the ground floor, you won't realize right away that you have arrived at a WeWork. The elevator lobby and corridor are still white walls, marble floors and a pale yellow ceiling, not WeWork's neon lights, big slogans and loud wallpaper. The landlord required that this stretch stay as it was.

The IFC has a square floor plan. The middle of each floor is given over to shared facilities — elevators, stairs, restrooms, load-bearing walls — and almost none of it can be touched. The office space wraps around that core in a ring. For Huyan Binyu, designing inside the IFC was "like solving a math problem: you know what your constants are, and your variables have to work around them."

To soften the break between the two, all she could do was surface work: two WeWork screens on either side of the elevator-lobby corridor playing WeWork videos, a ceiling repainted in WeWork's white, four bubble lights hung overhead. "Wherever we could let WeWork's elements come through, we let them come through, and carried it as far as we could until there was nothing more we could do," she said.

The office area, on the other hand, looks nothing like the rest of the IFC.

When Huyan Binyu first walked onto the 15th floor last October, all that was left were four walls. WeWork had torn out nearly 80% of the original office — partitions, sofas, dropped ceilings — everything it considered flatly at odds with its character and an "outdated spatial structure."

With the dropped ceiling gone, WeWork spray-painted the exposed pipes and ducts white, the office look internet companies favor. The IFC's marble floor gave way to wood. The bright red sofa by the entrance was replaced by a curved, open brown one. Beside the sofa is an open drinks bar with beer, tea and coffee around the clock. Put together, the office looks more like a designer's home. WeWork believes that in a setting this relaxed people open up more easily — or are at least pushed into acting a little friendlier.

The desks called "hot desks" sit next to the common areas. The people who use them have no fixed seat but can come in whenever they like and work in the shared space, surrounded by other "free" types like themselves. The IFC has far fewer of these than other WeWork spaces: across 2,000 square meters, WeWork fit 249 desks, only 8 of them hot desks.

The design changes at WeWork IFC extend to the glass. From the beginning, every WeWork space has used clear glass walls. WeWork wants the transparency to produce more eye contact among the people sharing a floor; once they know each other's faces, they will be more willing and more able to strike up a conversation, become friends, and build an active community. WeWork is strict about it — a company renting a private office, for instance, may not put posters or anything else on the glass that blocks the view.

At the IFC, WeWork swapped the building's original office partitions for glass, but this glass is no longer fully clear. The outer glass of each office is frosted on top and clear below, so people walking past can't see inside. The glass between neighboring offices is the reverse — frosted below, clear above — which borrows the natural light and lets people see each other when they stand up, while keeping them from looking at what's on each other's desks as they work.

The glass is particular to the IFC, done because financial clients care more about privacy. For the same reason, WeWork installed electronically controlled frosted glass in the IFC's oversized conference rooms, a first for the company; the transparency can be dialed up or down as needed.

Everything the IFC offers is a little pricier, too. Free coffee is standard everywhere, but other locations only provide a coffee machine, while the IFC has baristas from the local brand Seesaw making it on the spot — the first WeWork anywhere in the world to do so. Nearly all the furnishing brands at the IFC are high-end designer labels: Frank Chou, Muuto, Hay, Saint Laurent.

Other changes mark the beginning of WeWork's worldwide turn toward corporate clients. Take the wallpaper.

Wallpaper has always been a WeWork signature. At the Weihai Road flagship, bright tropical-rainforest wallpaper covers the meeting rooms and common areas. Huyan Binyu says that starting with the IFC, WeWork spaces around the world will go back to the white walls of a conventional office, hung with a few pieces of art. The paintings at the IFC are abstracts based on the cluster of buildings visible outside the windows near Lujiazui.

WeWork offices around the world are covered in bold slogans cheering the people inside on. At the IFC, all that survives is the dark red lettering by the window near the entrance — "DO WHAT YOU LOVE" — cutting down sharply on the office's collisions of color.

Step into the IFC and you can still pick out WeWork's outline in the wood floors, the plants, the shared drinks area, yet it plainly feels different. In the old WeWork, you pushed open the door and rich, jumping color filled your eyes. The IFC office runs on black, silver and dark brown.

Huyan Binyu calls the IFC one of the most important turning points in WeWork's transformation, and says the direction it takes here is the design direction for WeWork worldwide.

Words like "design," "atmosphere" and "community" dress WeWork up as something wonderful, but the basic service it sells is still office leasing: rent an office tower from a developer, fit it out and design it, then sell the space on with other services attached and pocket the difference.

Rent at the IFC runs 25 to 30 yuan per square meter per day. Several office-leasing agents in Lujiazui told QDaily that a person at the IFC generally needs about 7 square meters, which comes to 5,250 yuan a month.

WeWork, by contrast, prices by the head. Its floor price of 5,290 yuan is close to the normal rent, but that buys one of the handful of hot desks in the shared area, taking up what looks like about 3 square meters. What matches an ordinary leased office at the IFC is a WeWork private office, where the per-person price varies by room: a nine-person room, for example, works out to more than 9,100 yuan per person per month. The gap in between is where WeWork's gross profit comes from.

There are, of course, real conveniences in choosing WeWork. Money alone, for one thing, is not enough to rent space at the IFC.

Li Liqing, an office-leasing agent in Lujiazui, says the IFC vets prospective tenants extremely strictly: a company must have state backing, and a foreign company must rank near the top of its industry. WeWork IFC, by contrast, "has no screening criteria for the companies that move in, and none for any of its members" — lowering the bar for getting into this top-tier tower.

WeWork will also rent to you for a single month; the IFC's minimum lease is two years.

Li Liqing estimates that fitting out even the smallest 280-square-meter space at the IFC costs at least 300,000 yuan. Spread over a two-year lease, that adds 150,000 yuan a year, and it doesn't count the time lost to construction. WeWork also covers utilities and internet.

WeWork takes care of the other chores that come with renting your own office too: reception, Wi-Fi, the pantry, daily cleaning, repairs, dealing with the landlord.

Put simply, a company pays a bit more each month and gets an office it would otherwise have spent a great deal of effort and money to get right.

What makes WeWork unusual as a business is how much it is worth. After taking $4.4 billion from SoftBank last August, WeWork was valued at $20 billion.

But WeWork was not the first to take a large space, remodel it and re-lease it in pieces. IWG, formerly Regus, born in the dot-com bubble and still growing, has a market value today of just $2.055 billion. Its office footprint is five times WeWork's.

Measured by floor area, the same amount of office space is worth more than 40 times as much at WeWork as at IWG — and the two do not charge rents that differ by anything like that much.

Measured by head: WeWork's 220,000 tenants (members, in its own language) each hold up $91,000 of valuation. IWG's 2.3 million tenants each account for $893 of market value. A hundredfold gap.

By the same arithmetic, a WeWork member is worth 44 Airbnb users, 70 Apple users, 430 Facebook users.

Doubts that WeWork is valued too highly have never stopped, and CEO and co-founder Adam Neumann concedes that if you look only at desks leased and rent collected, it is indeed too high. "No one is investing in a co-working company that's worth $20 billion. It doesn't exist," Neumann told Forbes in a 2017 interview. "Our valuation and size today are much more based on our energy and spirit than any other metric."

On stage Neumann wears a T-shirt and sneakers, like any young Silicon Valley CEO. The story he tells is a Silicon Valley story too.

It starts with a workplace that is addictive and sets off new ideas. The employees of the companies inside are not tenants but members, equally full of energy — WeWork even coined a word for them, WeGeneration: "different ages, different professions, different paths through life, but all of them count psychological fulfillment as part of success, and are willing to do good, to be grateful for wealth, and to draw on the power of community through socializing. They are the creators of the sharing economy, and they blend naturally into WeWork's community of creators."

The community's larger value to WeWork lies in what gets spent after the rent. In an ideal world, renting a WeWork desk is only the start: the tenant goes on to use the office software, insurance, legal support, recruiting and other business services WeWork offers. WeWork doesn't run those services itself. It is the middleman between suppliers and customers.

In the end, WeWork is a store for business services, on a logic much like Amazon's hundred-billion-dollar AWS. One handles everything to do with running an office, the other everything to do with corporate IT.

Before joining WeWork in 2015, its current COO, Artie Minson, was CEO of Time Warner. That cable company doesn't make television programs; it sells infrastructure. You have to buy its box, and you subscribe to channels through the box. He has applied the cable model to WeWork: on top of renting space to users, sell them the services an office needs.

Last year WeWork launched the WeWork Service Store, where members can buy more than 100 kinds of service — enterprise software such as Microsoft Office 365 and Salesforce, and operations services such as the expense platform Expensify and the car rental company Avis.

WeWork brings these business-service companies customers, and uses its scale to get its tenants prices below retail, lowering their operating costs. For a property company like IWG, a user's value is harvested the moment the rent is paid. For WeWork's users, paying rent is where it starts.

This is the ideal, of course, and WeWork hasn't reached it. Meanwhile, things have already changed.

Since 2015, the number of funding deals for small and midsize internet startups has been falling. Over the past two years, the volume of seed rounds in the US has dropped 40%. At the same time more and more investment is concentrating in a few very large young companies — Uber, Didi, Airbnb, and WeWork itself. This is a long way from the booming startup market WeWork faced when it was founded in 2010.

WeWork has to lease large amounts of space and then re-lease as much of it as it can. Whatever it fails to fill, it pays for.

Which explains why WeWork has lately been pushing toward big companies — blue chips are plainly steadier than startups and freelancers. WeWork is now happy to point out that 30% of its members are large companies such as HSBC, IBM, General Electric and Bank of America, its fastest-growing customer group.

Big companies pay rent more reliably, but they already have complete support systems of their own and can deal with business-service companies directly and efficiently. They have no need for WeWork in the middle. The more of them that use WeWork, the harder the "store for business services" story becomes to tell.

So WeWork is redesigning its offices for corporate clients on one side, and on the other has launched a program called Powered by We, built for clients with more than 1,000 employees.

Like a property manager, WeWork offers these companies two kinds of service. In the first, a big company moves into one of WeWork's buildings and WeWork remodels the existing space to fit: the company's logo, custom slogans and so on. In the second, a company hires WeWork to design one of its own buildings or campuses outright, in WeWork's style. In Greenwich, WeWork runs an entire building for IBM; in Berlin it manages Airbnb's local office; in Boston it helps Amazon manage its offices.

Is designing offices and running them day to day for big companies a business large enough to hold up a $20 billion valuation? Who knows.

What is certain is that, as the changes at the newly opened WeWork IFC show, WeWork itself has changed along with its customers.

Unless otherwise noted, all images are from WeWork.

Cover image: Officelovin'