Mathrani Argues That ‘Zoom Fatigue’ Has Set In and Workers Want Flexibility

Sandeep Mathrani has an answer for corporate executives rethinking office space needs because of concern that productivity and innovation may be stalled by the pandemic: create a hub-and-spoke system.

The chief executive of WeWork, the flexible office space provider, said workers are suffering from what’s been called “Zoom fatigue” after nearly seven months of the working-from-anywhere phenomenon and are ready to go back to the office. But he said flexibility and safety still loom large as barriers to the pre-pandemic definition of the office.

“Flexibility is the name of the game,” Mathrani said during the Future of Work keynote at ICSC’s Retail in the Age of COVID-19 virtual conference Wednesday.

The comments are significant because Mathrani was named CEO of WeWork in February, brought on to realign the high-profile company after a chaotic growth period and a botched initial public offering that led to the ouster of former CEO Adam Neumann. Mathrani has won guarded praise from analysts so far for his moves to slash costs as well as drop the least profitable leases, so his take on coworking in a pandemic is closely watched in real estate circles.

Of course, his answer for the industry, not surprisingly, would also directly benefit New York-based WeWork. The firm, like other providers of shared office space such as Knotel and Regus, is trying to deal with office workers who are staying away in the pandemic. Executives heeding his advice would continue to take office space, but do so in different smaller segments that could benefit flexible workplace providers.

He suggests keeping a headquarters or main office as the culture-defining place of relationship building and invention and allow workers to find functional spots within a 15-minute walking distance of their homes.

“You want a hub for collaboration purposes, but you need a spoke system for where people live,” said Mathrani, who was CEO of GGP when it was bought out by Brookfield Properties. He’s also an ICSC trustee and on its executive board.

Having said that, he doesn’t believe this new wave of workspaces at home or wherever there’s a computer and internet accessibility is the future of work. People need and want to get back to work, he said.

“Start off by being flexible,” he said. “But I do believe that as time goes on, if we want to continue to be a productive nation, [employees] are going to come into the office five days a week.”

To that end, WeWork is marketing its millions of square feet of office space around the world and its short-term leases as an office-space solution, particularly in the near future.

“In the near term, we offer lots of advantages,” he said. “What we did at WeWork is pivoted … we are a flexible office space provider, then pivoted further to becoming a flexible space provider.”

Finding Spaces

He used a deal signed ahead of his talk as an example. An ad agency with 100 employees needed a permanent home in Brooklyn for only 30 people. He subleased the firm 10,000 square feet for 30, and through WeWork’s new All Access app, which gives holders admission into any one of the 800 WeWork sites around the world, he found locations for the other 70.

“They provided space for all 100 employees but only 30 people on a permanent basis,” he said. “I like to say when you go to Starbucks, you pay for the latte and get the space for free. When you come to WeWork, you get the latte for free and you pay for the space.”

Like his tenure at GGP, Mathrani at WeWork had to streamline the selling, general administrative expenses of the organization that he said were “bloated.” Revenue was pouring in and growing rapidly, but expenses were adding up at a much faster clip creating a “huge cash burn,” he said.

At the same time, the real estate portfolio reflected the typical 80-20 split that most large ones do – 80% of the spaces were considered good, while the other 20% were flawed or inferior.

He knocked $1 billion in selling and general administrative expenses off the system by tweaking leases and paying off those he needed to get out of. He said he’s about halfway through cleaning those up.

At the time he joined, WeWork’s status had taken a blow because of all the criticism surrounding the firm and its heavy debt load.

But Mathrani said he actually inherited a “super” balance sheet because when the company’s main funder, SoftBank, stepped in to rescue the operation, it did so with $6 billion of fresh capital, $4 billion of which was cash.

Coworking Industry Struggles

Other coworking and flexible office space providers don’t have a Daddy Warbucks and have been walloped when people stopped coming into their offices to thwart the spread of the coronavirus. Hundreds of flexible office spaces throughout the country have gone dark and are not likely to ever come back.

At least 102 affiliates of Regus, part of International Workplace Group, the world’s largest shared office provider, have filed for U.S. Chapter 11 bankruptcy, and 39 affiliates that hold 85 leases in Canada filed for similar creditor protections, as the coworking industry grapples with reduced demand. More may follow suit as office space density issues and social-distancing standards prevail during the pandemic.

The potential for former coworking spaces across the country to close is significant because Regus alone has more than 1,000 locations in the United States and Canada under brands such as Spaces and No. 18. Filing for Chapter 11 opens the door potentially to letting coworking companies walk away from leases if renegotiation deals can’t be reached with landlords, meaning empty office space could pour onto the market in the pandemic, leaving landlords without revenue.

That tension has created a chasm between landlords and flexible workspace providers, pushing Mathrani to carefully streamline the WeWork portfolio in a “friendly way” to preserve relationships with landlords.

“I’m all about reputation,” he said. “I’m all about doing the right thing. And to me, I want to be the tenant of choice of every landlord if I could do the right thing.

“I think by doing that we are the tenant of choice,” he added.

As the pandemic persists, coupled with WeWork’s strengthening financial viability, Mathrani said his client base leans more heavily toward S&P 500 businesses than the freelance and startups that helped launched the company. He expects as much as 65% of his client base will be major corporations within a year.

That, he said, gives WeWork a place in the resurrection of working in offices. “Our office is open and on average 70% to 80% of the people come to work every day,” a figure that would seem to be higher than the lack of demand across the industry that’s driving Regus affiliates to seek court protection from creditors.

He points out that flexibility with where workers spend their time is key: “No one is demanding they come every day,” he said. “But people like that.”