Study after study debunks open office plans. So why is WeWork such a big hit?
September 24, 2018 | Blog

Study after study debunks open office plans. So why is WeWork such a big hit?

WeWork recently became the largest private occupier of office space in Manhattan, an impressive feat given that the company only started 8 years ago. WeWork offices now take up more than 5.3 million square feet in one of the most expensive commercial real estate markets in the world.

The unicorn, which also operates communal, open work spaces in London, Shanghai, Tel Aviv, San Francisco, and Seattle, is clearly a phenomenon and enjoys a private valuation of $21.5 billion.

Yet WeWork’s popularity seems at odds with a considerable body of research that debunks the very premise of open office environments: that tearing down physical barriers between employees encourage face to face interactions, increases collaboration, and results in greater productivity, creativity, and innovation.

In July, the prestigious British research journal Philosophical Transactions of Royal Society B published a major study that concluded that open office spaces led to a 70 percent decrease in face to face interactions and a corresponding increase in electronic communications. In other words, employees spend less time directly talking to each other and more time e-mailing and messaging.

“In short, rather than prompting increasingly vibrant face-to-face collaboration, open architecture appeared to trigger a natural human response to socially withdraw from officemates and interact instead over computers,” wrote Harvard University professor Ethan Bernstein, who authored the study.

Over the years, a number of studies, reports, and surveys have echoed similar sentiments in that employees actually need privacy and quiet to get quality work done.

“We found people in open plan offices were less satisfied with their workplace environment than those in private offices,” Jungsoo Kim, a University of Sydney researcher, wrote in 2013. “The benefits of being close to co-workers in open plan offices were offset by factors such as increased noise and less privacy.”

Speaking of noise, another study published in the Egronomics journal in 2005 found that 99 percent of people said they were distracted by telephones at empty desks or people’s conversations in the background. And they never got used to it.

The Harvard study, however, might carry more credibility because it was the first to use “people analytics” technology like sociometric sensors to monitor employees of a major corporation before and after they transitioned into a headquarters newly designed as an open office workspace.

Yet despite the evidence, open work spaces are still the rage, spreading from tech firms to more traditional corporate offices.

Why?

Open work spaces arguably first gained popularity because of the enormous success of Silicon Valley and tech startups. These companies were not only disrupting industries and markets but also the workplace itself. Hoodies and jeans instead of dress shirts and slacks. Fooseball and ping pong tables instead of staid break rooms and common areas. Conference rooms were suddenly named after bars or sci-fi movies.

In short, the tech workplace repudiated anything corporate and there was nothing more than the office cubicle. Thanks to movies like the appropriately named “Office Space,” the cubicle become synonymous with corporate stagnation, a soul sucking disease that crushed employees’ dreams while strangling creativity and snuffing out innovation.

In 2010, Adam Neumann and Miguel McKelvey founded WeWork, which seemed to exploit America’s love affair with open office spaces. “Whether you need a desk, office suite, or entire HQ, we create environments that increase productivity, innovation, and collaboration,” the company says on its home page.

“We transform buildings into dynamic environments for creativity, focus, and connection. More than just the best place to work, though, this is a movement toward humanizing work. We believe that CEOs can help each other, offices can use the comforts of home, and we can all look forward to Monday if we find real meaning in what we do.”

Maybe so. But WeWork offers companies perhaps a more compelling proposition than pleasant aesthetics and colorful furniture: it’s much cheaper to rent a WeWork space than signing expensive long term leases in crowded, big city markets.

According to a study it commissioned, WeWork estimates a four-person company saves an average $18,000 a year on a comparable 600-square-foot office, fit-out costs, and agent fees. The company says small businesses, startups, and non-profits account for 75 percent of its customers while 22 percent are Fortune 500 firms.

You can’t ignore those potential cost savings. As the global economy has expanded, office rents have been rapidly increasing in major cities around the world. Midtown-South Manhattan, now the most 7th most expensive market in the world, recently hit an all time high of $171.56 per square foot.

In the Americas alone, office occupancy costs rose 3.2 percent in the first quarter of this year, slightly slower than same period in 2017, but still pretty robust, according to a report by CBRE Research. “The global economy grew at a rapid, above-trend pace in the 12 months ending Q1 2018. For the first time in this cycle, growth (in occupancy costs) was consistent across all regions,” the report said.

So despite all the chatter about collaboration and productivity, open office spaces appeals to something near and dear to any company’s heart: the pocket book.

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Any securities offered are offered by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost Inc. Certain affiliates of these entities may act as principals in such transactions.

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Thomas Lee

Thomas Lee

Thomas Lee is the Senior Writer at SharesPost. He was previously a business columnist at the San Francisco Chronicle. Lee has written for the Star Tribune in Minneapolis, St. Louis Post-Dispatch, and Seattle Times. He is author of “Rebuilding Empires” (St. Martin's Press), his book on the future of big box retail in the digital age.

DISCLAIMER: This blog does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The information contained in this blog has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

None of the information contained in this blog represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

Any securities offered are offered by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost Inc. Certain affiliates of these entities may act as principals in such transactions.

Copyright © SharesPost, Inc. 2019. All rights reserved.