Mark Kleinman: WeWork’s decline foretells trouble in the property market
Mark Kleinman is Sky News’ City Editor and is the man that gets the City talking in his weekly CityAM column. This week he tackles WeWork’s collapse, Alison Rose’s battle with the ICO and the Nationwide ad that’s infuriated other banks
WeWork downfall foretells property carnage
We(don’t)Work. The filing for Chapter 11 bankruptcy protection this week by one of Silicon Valley’s most-feted companies of the last decade offers another salutary lesson in the folly of investors chasing an economic fantasy.
The writing has been on the (expensively furnished) wall for the co-working company for years. Post-pandemic optimism about the future of shared office providers proved, in WeWork’s case, to be illusory.
While its bankruptcy filing is predominantly a US-led process, sources say that a restructuring plan or company voluntary arrangement to exit underperforming leases is likely in the UK in the near term.
It won’t be the only one. In global financial centres like London and New York, commercial real estate owners are facing mounting financial pressure.
The evidence is stark: Canary Wharf Group’s announcement last month that shareholders Brookfield and the Qatar Investment Authority have injected £400m of fresh capital was positioned as growth funding as it “continues to evolve into a vibrant and diverse estate” (in the words of one of the investors). In reality, it was a dressed-up exercise to shore up the company’s balance sheet in the wake of a wave of corporate tenants departing or downsizing.
Revolut’s potential move to lease 113,000 square feet of space in the district’s YY building, flagged this week in the property industry press, suggests a more optimistic outlook, but without knowing the terms of any agreement, it would be premature to hail a renaissance.
Then there is the flood of real estate fund gatings and closures which have gathered steam again in recent weeks, with St James’s Place in the former camp and M&G Investments in the latter.
“Open-ended funds are finished,” one prominent property investor told me yesterday. “This is their death knell.”
A wave of refinancings in the UK commercial property sector awaits over the next 24 months. Those holding high-quality assets should be ok; but for others, a bloody reckoning is going to spell carnage that will make Wework’s bankruptcy look like a jovial office party.
Nationwide chief’s pay deal has exposed risks in bold new image
Nationwide, Britain’s biggest building society, likes to style itself in stark contrast to the high street lenders it competes against.
Branch closures? Those are for profit-driven banks, not us, it proclaims. A vibrant sense of customer ownership? Naturally. Satisfaction levels? Top of the league.
Something about Nationwide’s latest efforts to burnish its public image jars, though. Its decision to pull out of Cash Access UK, the industry-wide group set up to oversee the provision of basic banking services, was carefully choreographed to coincide with a brand relaunch that took a brazenly sneering attitude to its rivals.
The suggestion – communicated through a TV spot featuring the actor Dominic West – could not be more explicit: banks are avaricious, rapacious corporate animals which could not care less about their customers. Turn to us, an institution with your interests embedded in our core, instead.
I understand that a number of the big five high street banks have been so incensed by the campaign that they have been mulling registering formal complaints with the Advertising Standards Authority.
Part of that indignation is undoubtedly unjustified, given the litany of scandals in which the banking industry has found itself embroiled during the 15 years since the financial crisis. And it’s not entirely clear on what basis any individual bank could submit a plausible ASA complaint, given that Nationwide’s implicit message is that the entire industry is morally bankrupt.
But in other ways it’s a risky approach for Debbie Crosbie, Nationwide’s chief executive for the last 18 months. The building society may score well in terms of customer satisfaction, but it is hardly flawless.
And here’s one area that its approach to doing business doesn’t differ wildly to that of the big retail banks: its boss’s pay package.
Last year, Crosbie, the former TSB chief, received a handsome £3.45m, higher than any of the nine years under Joe Garner, her predecessor. Admittedly, £1.7m of that was the cost of replacing awards forfeited when she left her previous employer, but Nationwide can hardly bleat that its mutual status leaves it unable to compete in executive pay terms.
And there’s another curious thing about Nationwide’s rebranding campaign. Its new logo bears a distinct resemblance to that of NatWest Group, the taxpayer-backed lender that it presumably wants no association with. How unfortunate!
A fightback is already underway
If there was an award for most humiliating corporate event of the year, it would be hard to beat the fiasco surrounding Dame Alison Rose’s NatWest Group exit. Sir Howard Davies, the former Coutts chief Peter Flavel, Rose herself, the City regulator: you name them, they’ve seen their reputation hit.
Now it’s the turn of the Information Commissioner’s Office, to Dame Alison this week for announcing that it had found her guilty of breaching Nigel Farage’s privacy when in fact it had investigated NatWest, rather than the former CEO herself.
Her fightback is already underway. I understand that late last week, she spoke at an event at Gleneagles hosted jointly by Sir Tom Hunter, the Scottish entrepreneur, and Founders’ Forum.
Friends say she intends to fight hard to rebuild her reputation. Having paid a heavy price for her mistake, shouldn’t those at the data watchdog who further tarnished her reputation be held accountable too?