WeWork remains on course to occupy most of the former Central Bank of Ireland building in Dublin, despite the troubled co-working firm seeking to renegotiate nearly all of its leases around the world and leave some buildings it currently occupies.
The move will not have “any impact on the commercial agreement in place for One Central Plaza,” as the building is now known as, a spokesman for Hines, the developer which owns the building, said in response to questions from The Irish Times.
WeWork is the anchor tenant at the 11,148sq m (120,000sq ft) office block on Dame Street in Dublin 2, and will occupy seven of the nine floors in the building. One of the biggest tenants in the city, WeWork separately occupies space at the 9,920sq m (100,000 sq ft) 2 Dublin Landings building in the docklands as well as Harcourt Road and the Charlemont Exchange near the Grand Canal.
The move to renegotiate leases comes weeks after the SoftBank-backed group warned that there was “substantial doubt” about its ability to continue as a going concern.
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The New York-based company’s drive to cut lease costs it described as “dramatically out of step with current market conditions” threatens a commercial real estate industry that is already suffering from the excess capacity that followed a coronavirus pandemic-driven surge in working from home.
As of June, WeWork was in 777 locations in 39 countries, with long-term lease obligations of more than $13 billion (€12.1 billion), most of which come due in or after 2028. The group, which takes up long-term office leases from landlords before renting out space on a short-term basis, is one of the biggest individual tenants in Dublin. It operates from four locations in the capital.
WeWork announced the latest plan after telling its landlords they were “strongly advised” to join a listen-only call on Wednesday morning New York time at which it would share an important business update.
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David Tolley, chief executive, told landlords that dialled in that WeWork expected to exit some “unfit and underperforming locations” but would remain in most of its buildings.
In a statement after the call, he said WeWork was “taking immediate action to permanently fix our inflexible and high-cost lease portfolio” that he described as a legacy of a “period of unsustainable hypergrowth”.
WeWork has already spent several years seeking to cut its long-term lease liabilities, which exceeded $18 billion at the time Adam Neumann stepped down as chief executive after a failed initial attempt at going public in 2019.
At the same time, landlords have been looking to reduce their exposure to a company that has an outsized share of the office market in cities from New York to London and has appointed a series of bankruptcy experts in recent weeks.
“We’ve been approached by about 70 landlords since 2020 and have ended up taking over eight or nine [WeWork spaces]. The approaches are accelerating right now,” said Jamie Hodari, the chief executive of Industrious, another flexible office space company.
Mr Hodari said his company had also been “inundated” with calls from WeWork customers since its going concern warning in August.
Real-estate executives have said that many of WeWork’s New York sites are in lower-quality buildings, so its troubles may contribute to a widening divide between the most modern properties and more dated ones.
As recently as the first quarter of this year, WeWork accounted for almost a quarter of new leasing activity in New York, but several industry members have sought to play down the impact of a potential bankruptcy.
“It’s a small part of the market,” one said. The company occupies about 6.4 million square feet in a Manhattan office market that is 414 million square feet.
Even so, some landlords have moved to protect themselves. Last year, for example, the Spanish bank Santander took 160,000sq ft of space at 437 Madison Ave that had previously belonged to WeWork. The rent was a bit lower, according to a person familiar with the transaction, but it let the building’s owner, Sage Realty, reduce its exposure to the co-working company.
Shares in WeWork, which ultimately gained a public listing through a merger with a blank-cheque company in 2021, have fallen by 98 per cent in the past year. Having once commanded a private market valuation of $47 billion, its equity is now valued below $200 million. WeWork’s shares were 3 per cent lower at midday on Wednesday.
The lease renegotiations would have “no impact” on WeWork’s day-to-day operations, Mr Tolley said. “Let me finish by making one thing clear,” his statement said. “WeWork is here to stay.” – Copyright The Financial Times Limited 2023
