Following a remarkable first half of the year, in which WeWork recorded a loss of $690 million on $1.5 billion in revenue, the company initially considered cutting its valuation by more than 50%, before ultimately ousting its CEO and withdrawing its filing to go public.
For a little context on WeWork, the real estate company which has creatively branded itself as a tech company, shares a nearly identical business plan as Real Estate firm, IWG (Regus Americas). But of course, IWG, despite having 8x as many locations as WeWork and twice the revenue, is hardly looked at through the same lens as WeWork.
This of course has finally stoked concerns surrounding the viability of the company and the potential ripple effects it may have on the cities in which it has “invested” in.
Here in Vancouver, WeWork is the region’s second-largest office tenant, after Amazon. WeWork has a total footprint of 678,000 square feet, including 279,000 sqft of existing space and 399,000 sqft of planned space, with firm deals, across nine locations, according to a recent report on Canada’s co-working market by CBRE brokerage house.
Ross Moore, a senior vice-president and tenant advisory specialist with Cresa in Vancouver, said WeWork will not want to give up its first-mover advantage in this market. “(But) they now have constraints. I’m hearing anecdotally that they have made commitments that require a lot of capital in a relatively short period of time.”
Would they turn and run? “If you sign a lease, that’s a very significant commitment,” Moore said. “But if you don’t have the capital to build that space out, then what do you do?”
This of course raises concerns over a potential spike in the office vacancy rate here in Vancouver, which could impact asset values. Per Altus Group, Q2 2019 data shows a marked slowdown in commercial property transactions, Investment volumes over the first six months of 2019 were down by 53%, and deal counts were down by 32% when compared to the first half of 2018. However, The office market recorded the only positive gain, 51%, due mainly to two significant Q1 transactions with a combined total of $303 million. On average, 4% yields are still expected in the office, retail and industrial markets.