For years, landlords around the world clamored to get WeWork into their office buildings, making it the largest corporate tenant in New York and London. However, now WeWork is on the brink of bankruptcy, which couldn’t come at a worse time for office landlords. The pandemic has led to fewer employees going into the office, causing a crisis in commercial real estate. Many landlords have accepted lower rents from WeWork to keep the company afloat, but its bankruptcy would be a huge blow. Landlords that have leased a significant amount of space to WeWork, particularly in New York, are struggling to make payments on the debt tied to their buildings. Some landlords may accept lower rents from WeWork as part of a bankruptcy reorganization, while others may have to fight in court to recover anything.
WeWork still has a vast empire of locations worldwide, but speculation of a bankruptcy filing has intensified recently, with its shares falling 90 percent. The fallout from a WeWork bankruptcy would hit older office buildings in New York the hardest, with a considerable amount of vacant space. Many of WeWork’s leases in Manhattan are in Class B and Class C buildings, which will likely face significant challenges with a bankruptcy. Landlords of these buildings, who were initially thrilled to lease space to WeWork, now find themselves in a difficult situation. They have been unable to make debt payments on buildings that are now valued much lower than before.
WeWork’s bankruptcy would have a substantial impact on the New York market. At its peak, WeWork was valued at $47 billion, but its business model was always financially unsustainable. Despite its issues, WeWork had enthusiastic supporters in the commercial real estate industry. Co-working providers were expected to lease 30 percent of all office space in the U.S. by the end of the decade, but the current pandemic has significantly changed that outlook. WeWork and other co-working providers accounted for only a small percentage of leases signed in New York last year.
In conclusion, a WeWork bankruptcy would have severe consequences for office landlords, especially those with a significant amount of leased space to the company. The pandemic has already caused a crisis in commercial real estate, and WeWork’s demise could further worsen the situation.
