The business model behind the co-working craze is falling out of favor.
Until now, fast-growing co-working providers such as WeWork Cos. have generally stuck to a buy low, sell high financial model.
In short: They sign long-term leases for office space they then refurbish, divide into incubator-like smaller spaces and rent out at high rates a month at a time.
This practice carries much risk given its high fixed costs: rent to landlords. But it also can create hefty profit margins during good times. That promise has propelled WeWork to a nearly $17 billion valuation.
Now hundreds of millions of dollars in investment is flowing into WeWork competitors pursuing models more akin to hotel chains, where landlords pay co-working operators a fee and keep most of the profits. That moves the risk away from the startup co-working companies and back toward landlords.