What Could the WeWork Bankruptcy Mean for the Office Market?
There’s no denying that WeWork has been a huge force in the office market over the last thirteen years of operation. The coworking space giant quickly grew, becoming the largest private tenant in economic powerhouses like New York City and Central London. As of December 2022, per the last SEC filing, WeWork had about 44 million square feet of office space globally, with 18.3 million of that in the US and Canada.
While there was speculation, a path to profitability was not clear for many years. WeWork’s fortunes turned four years ago and their issues were exacerbated by the Covid-19 pandemic. These troubles culminated in the company filing for bankruptcy on November 6th, 2023. The Chapter 11 filing stated that WeWork held nearly $19 billion in debts.
State of the Office Market
Since the onset of the Covid-19 pandemic, the office market has faced multiple headwinds, such as a surge in remote work, decreased space requirements from major tenants, and, most recently, softer hiring for office-bound employment.
The latest VTS Office Demand Index (VODI) recognized two years of stagnant office demand relative to pre-pandemic norms. Nationally, over the entire period since October 2021, the VODI has remained within a narrow range between 46 and 67. With work-from-home levels remaining persistently elevated, the VODI has settled into a post-pandemic state.
Green shoots have emerged across markets, with high levels of in-office work in New York City and Chicago and AI driving leasing activity in San Francisco, but still, the market has stabilized.
What Does the Bankruptcy Mean for the Office Market?
In terms of what will happen with WeWork spaces, the company has asked to give up 69 leases, 40 of which are in New York and about a dozen located in California.
This offloading of its office portfolio is not entirely unprecedented. Office rental firm Regus filed for bankruptcy in 2003 and again sought Chapter 11 protection in 2020 for some office spaces. The firm still operates as a subsidiary of IWG.
Naturally, many are asking what this could mean for the office market and downtowns more broadly. The good news is WeWork doesn’t have a direct impact on office demand or market performance. Most tenants in WeWork spaces will stay where they are, but there is the potential for smaller tenants, the core customer base, to enter the market.
Small tenants are the majority of all office demand today, and they tend to sign shorter and smaller leases. Per VTS Data, 70% of tenants that entered the market between January 2021 and October 2023 across the gateway markets were under 10,000 square feet. Over the same timeframe, deals executed <10k sf averaged a lease duration of 5.2 years.
WeWork proved that focusing on small tenants was worthy, and they were a bigger presence than originally thought. In the meantime, though, traditional office landlords have scaled up their product for this group of small tenants, offering flexible and fully built-out spaces on shorter-term leases for <5k square foot requirements.
This includes Studio by Tishman Speyer, which has already taken over 217k square feet of space from WeWork in Long Island City, NYC.
While there is still ambiguity in what happens with WeWork's office space and how that will affect the broader economy, it's clear that leasing and asset management teams need real-time, intelligent deal management tools to deal with whatever economic changes come their way. Having insights into seismic market shifts is critical to understanding how to grow your portfolio.
VTS Data's predictive market data can project net absorption 2-3 quarters ahead of the market, positioning you to respond to market changes before your competitors even know they're coming. And with VTS Market's proprietary company views data, you can identify the tenants interested in your space before they inquire. Time is of the essence in today’s complex market, so staying ahead of the curve with real-time data and intelligent digital marketing is critical for seizing the best opportunities for your portfolio.
