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Rather than signaling an end to coworking spaces and a doomsday for downtowns, WeWork’s bankruptcy filing last week signals an opportunity for startup or existing flex space providers, experts say.
Shortly after announcing it had filed for Chapter 11 bankruptcy protection, WeWork released a list of the 69 locations it was walking away from, many of them in New York City. The company said it would leave behind the high-end furniture and other fixtures it used to outfit the offices.
This marked the latest chapter in the collapse of a company that was once valued at $47 billion. But the stunning downfall could hold a silver lining for competing coworking companies and the landlords who hold billions of dollars in loans that are at risk because of the collapse.
Mark Morris | Work Hive SLC
“If they can get a new space operator in there, maybe they’re bringing in less than WeWork [promised to pay], at least they’re not left holding the bag,” said Mark Morris, who owns the Salt Lake City-based coworking company Work Hive, which opened its second location last year.
Some of the leases WeWork walked away from were tied to $1.85 billion in debt, according to an analysis of the company by KBRA, a firm that analyzes commercial debt.
Many of those buildings — and others where WeWork is trying to renegotiate its existing leases — are in downtowns that are struggling through a period of high office vacancy that has tanked the value of buildings. WeWork’s demise is another pressure on the owners of those buildings who are already having a difficult time landing long-term tenants.
Michael Abrams, a flex space consultant, said he didn’t expect WeWork’s downsizing to have a major effect on the broader commercial real estate market.
“Do I expect any major issues in commercial real estate from this filing? Not really,” Abrams wrote on LinkedIn. “We will see defaults from landlords but we have been observing these defaults for over the past year.”
Demand remains strong for flexible office space, Abrams said.
“For all of the 40 leases being rejected in New York City, they represent about 1,500,000 square feet of office space and I suspect, depending on the landlord and their financial exposure, they might be able to transfer operations over to another operator,” Abrams wrote. “So much depends on the location, the class of building, floor plate size and the interior design.”
WeWork has already announced it would be giving 217,000 square feet of leased space in Long Island City to competitor Tishman Speyer, which operates a coworking brand called Studio.
“We are pleased to come to an agreement to transfer our operations at The JACX to Studio by Tishman Speyer,” a WeWork spokesperson told Bisnow. “We are grateful for Tishman Speyer’s partnership and look forward to working with them on a seamless transition of operations.”
Businesses and workers who had agreements in place with WeWork will continue on the same agreements with Studio until they expire, the outlet wrote.
KBRA analysts said other coworking companies could use the existing spaces.
Indeed, after leaving behind its furniture and other items required to run a flexible working space, WeWork effectively opened the door for competitors to take over the vacant spaces.
“Building owner has no interest in running a co-working, and if you can get up and running quickly, the owner would be very inclined to try something. Either [revenue] share or short term lease.”
For all the attention garnered by WeWork’s bankruptcy, Morris said coworking will continue to thrive.
“The fact is WeWork has 800 spaces across the planet and there’s 40,000 coworking spaces across the planet,” Morris said. “They’re just the name brand everybody seems to recognize.”
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