Where WE Go From Here

Stakeholder Perspectives on WeWork’s Future

A tangible contributor in the U.S. office market’s recovery, coworking ranks ninth among industries in nationwide absorption since 2015. Just prior to WeWork’s failed IPO roadshow, momentum in the sector had accelerated dramatically, having improved its ranking to sixth among all industries in year-to-date absorption through 3Q 2019, and by itself accounting for nearly 8 million square feet of take up.

Fundamentals Undermined

As has been widely reported, even extolled by WeWork itself, the company represents the lion’s share of the existing coworking industry, accounting for over 70% of coworking space. And as promoted in its S-1 filing with the U.S. Securities and Exchange Commission, “the more locations [WeWork] stragically clusters in a given city, the larger and more dynamic [WeWork’s] community becomes.” As is now obvious, community was its endgame, market fundamentals were subordinated. The model being predicated on market saturation has resulted in WeWork contributing to an overwhelming majority of net absorption in a few select markets such as New York, Los Angeles and Seattle. WeWork’s prolific growth has even made it the single-largest private tenant in Manhattan, with a larger presence than JP Morgan, Goldman Sachs, Bank of America or any of the other financial firms that have traditionally dominated that office market.

What Happens Now?

In recent months, dramatic headlines and conjecture have circled WeWork’s abrupt diminution as the pioneering, flexible space provider navigates a path of restructuring toward profitability. With its valuation reportedly having plunged more than 70% since August, WeWork has worked feverishly to regroup, reducing overhead, lowering growth expectations and even rescinding some new expenditures, all while refocusing acutely on the core function of the organization – a coworking operator.

Given the geographic breadth and depth of WeWork’s leased portfolio and future commitments, the success or failure of the company’s locations has the potential to affect availability, lease terms and other real estate fundamentals in an array of U.S. markets, impacting neighboring properties or entire submarkets — and all stakeholders therein.

Who Will Be Affected?

Do you work in WeWork space? Is WeWork a presence in your building? In your neighborhood? In your city?

In the proceeding analysis, Transwestern estimates the impact WeWork could generate on specific U.S. office markets and raises practical considerations for stakeholders in markets with high WeWork saturation.

For a deeper dive on the coworking landscape in your market, contact a local Transwestern advisor at Transwestern.com/locations