iStock photo
WeWork’s bankruptcy adds a new stress point to Boston’s Class A office sector already struggling to adapt to elevated vacancies and uncertain future demand.
In its Chapter 91 bankruptcy filing late Monday, WeWork is seeking the “ability to reject the leases of certain locations,” which the company says are largely non-operational.
Locally, WeWork is asking court approval to reject the leases totaling 118,000 square feet at Rockpoint Group’s 100 Summer St. and 40,000 square feet at 40 Water St. in downtown Boston, which is owned by Hana Financial and KTV Asset Management.
According to research by brokerage Hunneman, WeWork has signed locations for a total 900,000 square feet of office space in Boston and Cambridge in recent years.
“These are all premiere class A locations and at least of the initial lease signing, represented north of 10 to 15 percent of the building occupancy,” said Mark Fallon, director of research and strategy at Hunneman. “To lose that is certainly challenging, but I’m not sure it spells disaster.”
Class A, Class B Buildings Hit
The WeWork locations range from high-end office towers such as One Lincoln and 33 Arch St. to class B properties such as 200 Portland St., a Bulfinch Triangle property where WeWork leased more than 55 percent of the square-footage.
With more than 650 locations worldwide, many in well-located downtown office buildings, WeWork sought to profit from renting office space ranging from single desks to full floors at short-term rates higher than its monthly lease obligations. It lured freelancers, creatives and tech workers with club-like amenities.
WeWork locations in Greater Boston. Image courtesy of Hunneman
The company’s financial troubles started to emerge prior to the pandemic when an initial public offering was canceled amid mounting losses and growing investor doubts about its long-term financial prospects.
The COVID-19 shift to remote work and the emergence of the hybrid model depressed demand for downtown workspaces. According to Colliers research, Boston’s class A office vacancy rate was 20 percent, compared to nearly 28 percent for class B properties at the end of the third quarter.
“It will be limited to some particular buildings in Boston, but it’s just another thing that’s not needed right now,” said Jeffrey Myers, research director at Colliers in Boston.
Cracks Appeared Long Ago
After warning of a potential bankruptcy filing in August, Softbank-backed WeWork began preparing a Chapter 11 filing last week, according to a Wall Street Journal report. As of June 30, WeWork had a $2.9 billion debt load.
The company is paying the price for aggressive expansion in its early years. The company went public in October 2021 after its first attempt to do so two years earlier collapsed spectacularly. The debacle led to the ouster of founder and CEO Adam Neumann, whose erratic behavior and exorbitant spending spooked early investors.
Unlike some operators in the coworking sector, which simply manage flexible office space owned by commercial landlords, WeWork’s strategy of leasing space outright and renting it to tenants at a higher rate proved difficult to execute in a commercial real estate market rocked by the rising cost of borrowing money, as well as a shifting dynamic for millions of office workers now checking into their offices remotely.
While the full impact of this week’s bankruptcy filing on WeWork’s real estate footprint is still uncertain, the company sounded an optimistic note Monday night.
“Our spaces are open and there will be no change to the way we operate,” a WeWork spokesperson said in a statement to The Associated Press. “We plan to stay in the vast majority of markets as we move into the future and remain committed to delivering an exceptional experience and innovative flexible workspace solutions for our members.”
Material from the Associated Press was included in this report.
