Flexible office space provider WeWork has seen its share of turmoil recently; from CEO and co-founder Adam Neumann resigning his post to announcing this week, it would pull its IPO filing. It appears the company’s troubles are not finished, however; according to The Wall Street Journal, a number of New York City landlords are hesitant to take on WeWork as a new tenant it goes through its financial struggles.
“WeWork has got to rework its whole position in the marketplace,” Scott Rechler, CEO of RXR Realty, a New York developer and investor that has WeWork as a tenant told The Wall Street Journal. “Because if they don’t, landlords aren’t going to be comfortable doing deals with them.”
WeWork recently completed a 362,000 square feet deal at 437 Madison Avenue in Manhattan, according to The Wall Street Journal. However, other landlords have put their deals with WeWork that were in the negotiation phase on hold. Meanwhile, some building owners have contemplated ending agreements with WeWork in cases where spending on capital improvements hasn’t started, according to brokers and building owners.
Landlords’ lack of interest in working with WeWork could negatively impact the New York City office market as a whole. Recently, Manhattan office leases have been under pressure due to a new supply of space becoming available, such as the World Trade Center, the new Hudson Yards as well as new office designs that have cut down on the amount of space per worker.
New York is not the only large U.S. office market that the current avoidance of WeWork could impact. CRE owners in Chicago, Boston, Los Angeles and San Francisco have all counted on WeWork to occupy excess space and entice startup companies that are attracted to the co-working model. The Wall Street Journal reports co-working tenants comprise 54.2 million square feet nationally and more than 16.5% of office demand since early 2017 can be attributed to WeWork and other co-working companies in 54 major U.S. markets, per data firm CoStar Group, INC.
Dallas-based developer Lincoln Property said WeWork is a tenant in more than 12 locations and executives said they still have a good relationship and continue to discuss future deals. However, the We Company’s canceled IPO and potential layoffs and the cost-cutting measure has made Lincoln cautious.
“We know there are going to be repercussions,” Lincoln Property VP of Innovation Eric Roseman told The Wall Street Journal. “We just don’t know if the whole mountain is going to get wiped out.”
While there are other co-working options like Industrious and Convene, which have been growing, they’re smaller than WeWork and are not expanding as aggressively.
It has been anticipated that WeWork will attempt to layoff thousands of employees in an attempt to reduce losses.
“Most of [WeWork’s] competitors emphasize their more deliberate pace of growth,” Mary Ann Tighe, chief executive of the New York region for commercial real-estate firm CBRE Group Inc. told The Wall Street Journal.