- Coworking is undergoing a market shock but remains a viable model.
- WeWork is Boston’s largest coworking operation, occupying 1.6 million SF-plus of office space — 2.2% of the total Boston office market.
- WeWork’s rent obligations in Boston total $1.2 billion.
- WeWork accounted for a third of Boston’s absorption in the last three years.
- Rapid growth has exposed WeWork to market risk from both COVID-19 and ongoing financing disputes with backer SoftBank.
- Despite current challenges, the flexible office model is here to stay.
Coworking has been one of the biggest stories in commercial real estate in recent years. In Boston, WeWork has been the main operator, with a meteoric rise in space occupied since it entered the market in 2014, and as of Q1 2020, occupied 1.6 million SF-plus of office space. One of the largest non-institutional office tenants in the city, second only to Fidelity, it has a footprint of 2.2% of the total supply. Much of this growth occurred between 2017–19, driving a third of Boston’s total absorption in that three-year period.
The question now is what becomes of WeWork and coworking in general as the world grapples with the challenges of COVID-19, forcing many to work remotely outside of the office and coworking space they normally occupy. While this has created its own challenges for the traditional tenant-landlord lease relationship, coworking has felt a major strain in keeping the revenue stream flowing. Coworking operations are being impacted globally: Industrious cut its workforce by a third, Knotel is in talks to give back up to 20% of its portfolio, and numerous groups, including WeWork and Knotel, have skipped some April rent payments. Some operations, such as Convene, have closed their doors temporarily, while others, like WeWork, look to continue operation. WeWork has even offered workers $100 per day to continue to come into work during the coronavirus lockdowns.
WeWork and others who have remained open now face the challenge of collecting rents from their tenants. Many have not paid rent for the month of April, putting increased pressure on these firms, which are still liable for their own rents on the master leases. In Boston alone, WeWork is out of the free rent period on 18 of its 20 locations for the month of April, which equates to a lease obligation closing in on $8 million for just this month out of an approximate $1.2 billion over the remaining life of these Boston leases. WeWork data shows Boston as one of its most stable markets, with upwards of 80% occupancy and approximately 63% of its space dedicated to the more stable enterprise clients. However, even enterprise users like EZCater have begun to feel the impact of COVID-19, laying off 400 across the company this week. The map included herein reflects coworking operations in Boston and Cambridge. The “we” logos indicate WeWork locations, while the red dots represent all other coworking and flexible space providers.
To further complicate matters, WeWork is also in a legal battle with financier SoftBank after the latter announced earlier this month that it will back out of an October agreement to purchase $3 billion in WeWork shares, which compounds the impact of COVID-19. WeWork is in a particularly precarious situation due to its rapid growth in recent years, as it is financially overextended.
The current economic climate does not, however, mean the end of the coworking or flexible office models. Companies like CIC have weathered past downturns and continued to grow through them. These uncertain times will lead some companies to pursue flexible lease options more aggressively. While WeWork itself may be in a tough situation, coworking operations and flexible landlord–run office spaces will persist.