How the Collapse of WeWork Could Impact NYC Real Estate
WeWork, a company responsible for leasing up to 1 million square feet of office space in cities around the world every day, has recently run into serious financial difficulties have raised concerns about the impact on New York City’s real estate market. In large part as a result of then-CEO Adam Neumann’s questionable and irresponsible antics, WeWork’s parent operation, the We Company, saw its valuation cut in half overnight right as the company was preparing to go public. As such, the We Company lost $1.3 billion in the first half of this year alone, which works out to a loss of $5,200 per customer. Several thousand layoffs at the company are planned, and the We Company’s more ambitious projects, such as the WeGrow academy, an entrepreneurial school, have been canceled.
WeWork happens to be the largest office tenant in New York City, as it owns over 100 locations in Manhattan, occupying 8.9 million square feet of office space. WeWork operates by maintaining office space and renting it out to professionals; however, in the aftermath of the company’s rapid decline, exactly what will happen to this tremendous amount of space WeWork is leasing is unclear. WeWork rose to prominence by offering flexible opportunities for urban professionals, and while the company is currently in decline with a low probability of recovery, the philosophy of flexibility in working environments is likely to stick around.
That’s because, while the business itself is failing, the business model WeWork popularized has taken off both among rival companies that lease office space and landlords themselves. While it remains the most notable example, WeWork did not invent the industry it occupies, and there exist a plethora of companies that are primed to take WeWork’s place in providing so-called coworking spaces, many of which pre-date the founding of WeWork. And according to industry reports, demand for spaces of this sort remains strong, as consumers appreciate the sort of freedom that flexible office space provides. As such, when WeWork’s leases expire, there’s nothing stopping landlords from adopting their business model with the office space they own, increasing revenues for corporate landlords and potentially reducing costs for clients.
As WeWork generally doesn’t run entire buildings, instead leasing a small percentage of them, the fallout from WeWork’s likely collapse is predicted to be relatively minor. In fact, landlords are already developing contingency plans for WeWork’s anticipated demise. That being said, not every company is abandoning WeWork, as they continue to generate new clients such as Rudin Management Company, which will soon open a six-story glass building in Brooklyn Navy Yard, with WeWork as its primary tenant. What’s more, large multinational corporations like Verizon and IBM have taken advantage of WeWork’s coworking spaces, as have Microsoft and Airbnb. That being said, these large companies would also likely be able to handle WeWork’s collapse, as they have the resources to maintain usage of office space currently leased to WeWork.
Though WeWork brands itself as a disruptive technology startup like Uber and Postmates, the reality is that WeWork is more like a glorified property-management company. Although the hype associated with WeWork’s tech-centered approach is responsible for much of its early success, technology turned out not to be a major factor in the company’s operation. While the future of WeWork as a whole remains uncertain but looks fairly dire, the future of coworking spaces is likely as bright as it’s ever been, as companies seek to take advantage of the flexibility such arrangements can provide.
Tyler Olhorst is a Contributing Editor at The National Digest based in New York. You can reach him at inquiries@thenationaldigest.com.