Liable for $8 million per month in rent payments in Boston alone, WeWork faces serious challenges in a post-coronavirus economy.

WeWork skyrocketed overnight from a little-known startup to one of the largest office landlords in Boston and in the country. 

And the firm’s secret sauce can be summed up in a single word, a concept that is now as radioactive in our new coronavirus world as it was once benign: density. 

WeWork’s business plan, simply put, involved dressing up staid office space as exciting, tech-style workspaces and cramming in many paying customers as possible, from startups and small businesses to companies looking for flex space. 

Those startups and small businesses, always a shaky long-term bet for relatively expensive office space, are looking even shakier now as the economy dives. 

WeWork, in turn, has also been going, hat-in hand, to the tower owners where it controls space, seeking breaks or delays on rent payments, according to published reports 

However, as Boston’s second largest landlord, WeWork now faces possibly an even bigger challenge than just hanging onto tenants amid the worst downturn since the 1930s, as tough as that is. 

The flashy coworking firm now also faces the larger question of whether its business model has any chance of surviving when workbenches and trendy open offices suddenly look like prime breeding grounds for the deadly virus. 

“I would say the end of densification is upon us,” said Aaron Jodka, managing director for research and client services at Colliers International in Boston. 

 $1.2B in Boston Liabilities 

WeWork today controls 1.6 million square feet of space in the Boston office market costing $8 million per month – enough to fill the Hancock tower, according to Colliers. 

As the economy plunges downward amid the coronavirus crisis, WeWork faces potentially crushing financial obligations at a time when firms, especially smaller and more vulnerable ones, are slashing any expense they can find. 

WeWork’s modus operandi is cutting deals with tower owners and then releasing the space at a higher price, pocketing the difference. It’s a business plan that doesn’t involve any complicated financial alchemy, just charging yearly memberships and then packing a lot more people into offices than had been there before. 

That might have worked while the economy was rolling, but not so much now. 

All told WeWork, which has been on the downslide since a failed IPO attempt last year, is on the hook for $1.2 billion in rent payments over the lifetime of its Boston leases, according to Colliers. 

And many of its tenants, especially the small business types who occupy roughly 40 percent of WeWork’s space in Boston have been particularly hurting. 

Corporate catering firm ezCater, a prime WeWork tenant in downtown Boston, just handed out pink slips to 400 workers. The firm rents roughly 100,000 square feet of space from WeWork at 40 Water S. 

Multiply that out by big cities across the country where WeWork frenetically gobbled up office space to flip when times were good, and you get a sense of what the company is up against. 

“WeWork is in a particularly precarious situation due to its rapid growth in recent years, as it is financially overextended,” the Colliers report notes. 

‘A Giant Question Mark’ 

But even if WeWork manages to survive the economic crisis, there is no guarantee there will still be a place for its business model in a world recovering from the worst pandemic since the Spanish Flu killed 50 million a century ago. 

A report by consulting firm CB Insights found WeWork manages to squeeze five office renters into the space normally reserved for a single worker in a traditional office space layout: 250 square feet. 

But the days of packing employees in appear to be fading fast if not completely gone at this point. 

Companies are expressing a newfound desire, if not for spacious digs, at least for enough space so employees aren’t bunched together in coronavirus breeding ground, according to Colliers’ Jodka. 

The open office format and work benches, where everyone is in everyone else’s business, have also seen a sudden drop in popularity. 

Scott Van Voorhis

That, in turn, potentially presages the return of enclosed offices and a more traditional format.  

That means more space for fewer workers, with companies forced to think a lot harder on who works in the office and who works from home. 

Those same dynamics will also be at play for startups and small businesses, only their choice will be between spending money, period, on space, or simply sticking it out their home offices or their local Starbucks. 

“That is a giant question mark,” Jodka said. “What we are hearing with our clients is space is more important today that it was two months ago or three months ago.” 

Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.