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Sharing Economy

WeWork Japan weighs move away from leases in expansion push

Focus on managing coworking spaces aims to reduce capital outlays

Under the current business model, WeWork Japan pays rent and foots the bill for outfitting properties as coworking spaces. (Image courtesy of WeWork Japan)

TOKYO -- WeWork Japan is expected to specialize in managing coworking offices, Nikkei has learned, moving away from directly leasing space to reduce its financial exposure while continuing to expand.

The company, which has 38 locations in Japan, intends to expand under the new business model as early as 2022, WeWork Japan CEO Johnny Yoo told Nikkei. The pivot would pave the way for growing to 100 to 200 locations, he said. With many of the current coworking spaces in Tokyo and Osaka, the expansion would include such regional cities as Sapporo and Hiroshima.

Management contracts are common in the luxury hotel industry, with foreign operators running facilities in Japan under the arrangement. Referring to the luxury hotel model, Yoo said WeWork Japan is considering a framework of collecting management fees from the property owners. Companies with strong brands and managerial expertise tend to have an easier time reaching such agreements.

The current business model of leasing space from building owners puts WeWork Japan on the hook for big rent payments. The company also foots the bill for outfitting properties as coworking spaces.

The switch to collecting management fees -- instead of receiving payments from users of coworking spaces -- may reduce WeWork Japan's income, depending on the arrangement and contract terms. But it would help reduce the rent burden and capital outlays. The less cash-intensive approach would curb business risks as well.

Coworking spaces tend to be located in accessible areas, such as close to train stations. Although WeWork Japan has not disclosed specifics, estimates based on average rents in central Tokyo would put monthly payments at hundreds of thousands of dollars per site.

WeWork Japan, a 50-50 joint venture between U.S. parent WeWork and SoftBank Group, has played a key role in developing the domestic market for coworking spaces since opening its first location in 2018. Rival Mitsui Fudosan plans to expand to more than 150 locations by March 2022, tripling from two years earlier. Nomura Real Estate Development targets 150 sites in fiscal 2027.

Mobile game developer DeNA and recipe site operator Cookpad announced plans earlier this year to move their headquarters into WeWork spaces in Japan. Yet membership under contract has generally remained flat at 20,000-plus. Expansion holds the key to fending off rivals and sustaining growth.

Demand for coworking space is expected to increase further amid the pandemic. With fewer employees going into the office, and working remotely instead, many companies are keen on promoting the use of coworking spaces and satellite offices.

U.S. parent WeWork continues to struggle, losing $3.2 billion in 2020, according to an investor presentation in March. Since nearly collapsing in 2019, the group is still in the process of shoring up earnings at home and abroad.

SoftBank Group, which also holds a stake in the parent through an investment fund, has provided assistance to both the American and Japanese companies. The need to expand while keeping outlays in check appears to have contributed to the shift in WeWork Japan's business model.

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