Members work in conference rooms at the Embarcadero WeWork Cos Inc. offices in San Francisco, California, U.S., on Thursday, Oct. 19, 2017. WeWork has focused its attention on Asia since 2016 with the opening of its first facility in Shanghai amid booming demand for flexible work spaces. Photographer: Michael Short/Bloomberg
© Bloomberg

London’s property barons cannot decide how best to deal with WeWork, the cool, flexi-office upstart. Despite unease over Brexit, some want to compete. Like dad squeezing into skinny jeans, it is an imperfect fit.

WeWork’s desire to make offices nicer is a noble one. It has enviable brand recognition and the kind of refits that tickle millennials. Cushman & Wakefield, the real estate agent, says it was the biggest taker of commercial property space in London last year. The numbers behind the company should alarm competitors. WeWork was valued at more than $20bn by its last fundraising. That is eight times the market worth of veteran rival International Workplace Group, which has 10 times the locations.

The flexible space market is risky and operationally intensive. Turnover is high and any company that rents out space for shorter periods will be left on the hook in a downturn. IWG issued a profit warning last year, citing weakness in London’s office market. That did not stop US buyout group Blackstone buying The Office Group for £500m or British Land, the UK’s second-largest real estate investment trust, from setting up Storey, its own flexi-brand, which offers space from the company’s portfolio.

This is hard to justify when the evidence for demand for flexi space is so scant in official data. CBRE reported take-up of central London office space was 23 per cent above average in the last quarter of 2017. WeWork, which rents its spaces on, accounted for a big slice.

London’s commercial property market is in a holding pattern waiting for Brexit. Big owners are reducing loan to value ratios by selling assets — note British Land’s loan to value has fallen from 34 per cent in late 2015 to 27 per cent. Caution is understandable. Foreign buyers have overlooked few bargains.

The share prices of UK real estate groups are at steep discounts to net assets partly due to the pall of uncertainty hanging over office space demand. To fix that, these companies would have to show they believe in the capital by making big bets on it. Dipping into the 21st century version of serviced offices by copying WeWork simply does not cut it.

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