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Evening Standard
Evening Standard
Joanna Hodgson

What WeWork filing for bankruptcy in the US means for London's office market

Looking back at WeWork's arrival in London in 2014 one West End leasing agent recalls how the US co-working business was quickly on the radar of the capital's huge office market. He says there was excitable chatter about this new concept offering free beer on tap as part of the service: It raised a smile. And when this quirky workspace provider signed up on new leases, "without so much as a haggle", it "raised eyebrows".

There was some serious other raising that followed relating to WeWork globally: capital to the tune of billions of dollars; its profile as a go-to for freelancers and start-ups; 'member' numbers; building locations.

To give an indication of its meteoric rise in London, around nine years ago the firm launched its debut UK site on the South Bank, and today it operates from around 47 locations here spanning some 2.9 million sq ft, according to real estate data company CoStar. That is equivalent space to more than five 'Gherkin' towers.

But growth has not been without big challenges, from concerns around corporate governance, to worries about WeWork burning through cash. Then the pandemic's working from home revolution hit that has changed the way offices are used, potentially forever.

Headwinds, on top of others challenges, started to come to a head in the Summer when the New York-listed company warned there was “substantial doubt” about its ability to continue as a going concern, and this week it emerged that WeWork has to take a bigger step of action. The company once valued at $47 billion (£38.1 billion) was filing for bankruptcy.

Steve Clayton, head of equity funds at Hargreaves Lansdown puts it like this: "WeWork has finally succumbed to its debts... listing assets of $15bn versus debts of $19bn in a court filing in New Jersey."

WeWork has made it clear that operations in the UK and Ireland are not a part of the Chapter 11 process and it remains business as usual.So what happens next to this 13-year-old offices giant, and is its huge presence in London-where it had seen recent good performances- going to be impacted?

Chapter 11

WeWork has long appealed to employers owing to its terms that means they could use space for as little as a hour in some cases, to a monthly subscription and then longer terms. That is much less onerous than traditional tenant and landlord deals. The workspaces look modern, with plenty of open-plan areas, comfy meeting lounges and added extras that vary across different locations, with some featuring weekly yoga classes, barista-made coffee on site and workshops.

But part of the firm's headache is related to WeWork itself having long leases, often 15 years, at premium rents agreed in some of the most expensive cities for real estate including New York and London. But market rates have since changed in line with the post-pandemic property market. That means it has had to keep up deals with landlords even if the space it essentially sub-lets out is not fully occupied, for instance during the pandemic, at rents that were agreed long before the commercial real estate market changed so drastically.

In September the company, co-founded by entrepreneur Adam Neumann who exited as CEO in 2019, said it would attempt to renegotiate leases and may exit some properties to reduce operating costs.

In a statement issued on November 6 the company said it has now entered a restructuring support agreement with shareholders to drastically reduce debts and speed up a restructuring process.

WeWork said it has filed for chapter 11 bankruptcy in the US and Canada to best position itself for the future. It is a tool used in the US that enables companies to restructure their financial position while they continue operating.

Now is the time for us to pull the future forward by aggressively addressing our legacy leases

David Tolley

David Tolley, who leads WeWork said: “Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet."

He added: “We defined a new category of working, and these steps will enable us to remain the global leader in flexible work....We remain committed to investing in our products, services, and world-class team of employees to support our community.”

The company said locations outside of the US and Canada are not part of the restructure process, and franchisees around the world are similarly not affected by the proceedings.

London latest

Despite hybrid working meaning people are in city centres less regularly, WeWork had actually recently observed signs of occupier activity improving in London.

As reported by the Evening Standard, the SoftBank-backed business said all access bookings at its sites in the capital were 16.9% higher in September than a year earlier.

WeWork's operations in the UK and Ireland are not a part of the Chapter 11 process and it remains business as usual.

A spokesman says: “London is and always will be, one of our most important markets, and we are fully committed to providing our members with world-class, flexible workspace solutions for the long term."

The spokesman adds: "We continue to work collaboratively with our landlord partners on solutions that set all parties up for sustainable success. The proactive decision to commence a strategic reorganization in the US will holistically address our high cost and inflexible lease portfolio and position the company for success.”

That statement points to working on "solutions" with landlord partners, and that could include London landlords. WeWork did not say what discussions would include, but property agents think lease length reductions, lower rents or exiting some sites could be among topics of conversation, although talks may not necessarily result in any of those. In some cases it could look to pursue revenue-sharing and management agreements with property owners.

Signage outside the co-working office space group, WeWork, at Chapel Street, London (Jonathan Brady/PA) (PA Archive)

UK property companies will be watching closely to see how WeWork's restructure goes in the US and how its trading here looks in the coming months.

Implications for the wider flexible office sector

As WeWork's update shows, the flexible workspace sector has not been immune from the post-Covid new ways of working, with many businesses allowing staff to work a few days in offices with the remaining days at home.

Industry experts think the sector still has plenty of room to grow and will appeal to employers wanting more flexibility in their real estate choices.

In the event WeWork does reduce its footprint here, there would be "strong demand from operators to take that space based on the underlying strength of the current flex market in London", says Cal Lee, global head of Workthere at property consultancy Savills.

Oliver Knight, head of workplace at property developer Landsec says: “Across London there is increasing demand for premium flexible workspace in vibrant, highly connected locations. We’ve seen this first hand with our flexible office brand, Myo, where our existing space is 95% let."

WeWork's Tolley said the company has a "strong foundation, a dynamic business and a bright future".

Users in London will hope that rings true for a long time and that WeWork, as a slimmer group, can benefit as more businesses seek new ways of working.

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