ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintSite TitleTitle ChevronIcon Twitter
Property

When WeWork sneezes, New York real estate catches a cold

Cash squeeze from delayed IPO threatens to push down office rents

The New York skyline: WeWork, as the largest private-sector office tenant in Manhattan, is deeply embedded in the city's real estate supply-demand dynamics.   © Reuters

NEW YORK -- As WeWork shifts from rapid expansion to leaner growth, the slowdown in signings of new lease agreements could have broader implications for the New York real estate market, where the office-sharing startup is the biggest private-sector office tenant.

"It's clear WeWork has had a far more outsized impact on the market than people generally realized," Dan Alpert, a managing partner at New York-based investment bank Westwood Capital, told the Nikkei Asian Review.

"WeWork's leasing volume over the past two years has skewed the market upward, where the market would have been very, very soft," Alpert said.

"If you had pulled WeWork out of the market and assume that their members were not otherwise taking space on their own, over the last two years they would have pushed the market from positive net absorption to negative net absorption," he said.

With the signing of a new lease at Penn Plaza last year, WeWork overtook JPMorgan Chase as Manhattan's largest occupant of commercial real estate -- spanning more than 5.3 million sq. feet.

Alpert, also an adjunct professor at Cornell Law School, calculates that the company has added nearly 3 million sq. feet in Manhattan over the past two years, from 2.4 million in mid-2017. The addition accounts for a significant portion of total leasing volume in Manhattan during that period, which was about 55 million sq. feet.

Had WeWork been removed from the equation, the Manhattan market would have experienced negative absorption of roughly 700,000 sq. feet of leased space, as opposed to the net absorption of 2.3 million sq. feet that occurred during that time, according to Alpert.

The SoftBank Group-backed WeWork halted the signing of new lease contracts earlier this week and while it later resumed the signings, only a limited number of contracts were in play, the Financial Times reported Friday.

WeWork rents office space from landlords, then renovates and subleases it to individuals and startups through short-term contracts. It has expanded its network almost five times in two and a half years, with 528 locations across 111 cities in 29 countries as of the end of June.

Apart from Manhattan, where it is headquartered, WeWork is also one of the largest tenants for office space in central London.

WeWork parent We Co.'s prospectus for its now-delayed initial public offering shows that as of June 30 it had $47.2 billion in future rent obligations under operating and finance leases.

The co-working company racked up rapid growth thanks partly to flexible offerings and its ability to capture those who would otherwise work from coffee shops or home. But such nimbleness also exposes WeWork's business model to uncertainty and risk.

"WeWork is really what I'll call a credit intermediator," Alpert said.

"Their members really would never be able to lease space on their own," he said. "In order to lease in New York, you need to sign up for five-, 10- or 15-year leases. You need to put up a significant amount of credit."

"The real puzzling factor here is to what extent was, or is, WeWork creating a market that wouldn't have otherwise existed," Alpert said. "And therefore the next question is: What if they ceased to exist?"

We Co.'s ambitious investment approach is at a turning point. Because the startup is postponing its IPO, originally slated for this month, it will find it prohibitive to raise $3 billion from new shares and another $6 billion in credit.

Co-founder Adam Neumann stepped down as CEO on Tuesday, and the new leadership team is starting to restructure WeWork and revise the company's expansionist trajectory.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends January 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media