WeWork Turns to New Business Model for India Expansion

(Bloomberg) -- As WeWork Cos. prepares to open its first location in India, the world's largest co-working startup is turning to a new business model that lets it avoid costly leases.

Instead of leasing the properties itself, WeWork's first Indian offices will be paid for by Embassy Group, a Bengaluru-based real estate firm, said people familiar with the matter. They plan to open co-working spaces in the city formerly known as Bangalore, as well as Mumbai and New Delhi, by the first half of next year, said the people, who asked not to be identified because they were not authorized to discuss the agreement publicly.

In WeWork's usual model, the New York startup signs leases of a decade or longer and then rents out desks and offices by the month to small businesses and freelancers. In India, WeWork will collect a proportion of the building's gross revenue as a management fee for its services, such as use of its workspace designs, brand, software for managing the building, staff training and its global network of members, the people said.

In addition to helping WeWork navigate a foreign market, Embassy Group will pay for the cost of remodeling the office space to the startup's design aesthetic, the people said. WeWork's arrangement with Embassy Group isn't exclusive, the people said. WeWork and Embassy Group declined to comment. The partnership was reported earlier by the Times of India.

For the six-year-old startup, a management model could help it reduce costs and expand more quickly. China's Legend Holdings and Hony Capital led an investment in WeWork this year that valued the business at $16 billion as it was preparing to expand into Asia, Bloomberg reported in March. WeWork now operates in Hong Kong, Seoul, Shanghai and more than two dozen other cities. WeWork Chief Executive Officer Adam Neumann discussed plans to enter India at a conference in January.

In a financial projection from April, the company reduced its profit forecast for the year by 78 percent and attributed the shortfall in part to collecting lower-than-expected remodeling subsidies from landlords in newer overseas markets. The agreement in India could help offset some of those costs and serve as a model for future markets. Bloomberg reported in June that the company was cutting about 7 percent of staff.

To contact the author of this story: Ellen Huet in San Francisco at ehuet4@bloomberg.net.

To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net, Andrew Pollack