WeWork’s current troubles might have a domino effect on the Vancouver commercial property market, as the embattled firm is currently one of the city’s largest tenants.
As estimated by CBRE, WeWork has a total of 678,000 square feet of Vancouver commercial space, spread across nine locations. Of these, existing space accounted for 279,000 sq. ft., while planned space represented 399,000 sq. ft.
Late last week, Bloomberg reported that the co-working firm was contemplating the shutdown of around 2,000 jobs, which would be a significant 16% of the company’s global employment numbers.
This came amid a catastrophic IPO fiasco that saw the company’s valuation plummet from a fantastical $47 billion in January to less than $14 billion just a few weeks ago – and the IPO getting suspended indefinitely.
And while this would not likely affect the company’s current Vancouver assets, the effect might become more apparent in WeWork pre-leases at buildings that have yet to be completed in the current construction cycle.
“There are other deals in the works,” Colliers International managing director (BC) Kirk Kuester told Postmedia.
“It will really take some time to see how those deals play out. The landlords would likely be looking at those deals closely and making sure they’re well secured from a covenant perspective and perhaps from a credit perspective.
In his latest contribution to Forbes, vulture investor George Schultze wrote that WeWork should be seen as an object lesson on what kind of promising “disruptor” companies to be wary about – a lesson that other Canadian commercial markets can take to heart.
“Certainly, WeWork grew rapidly, but growth doesn’t always translate into profitability and, sometimes, it conceals much bigger problems,” Schultze explained. “While WeWork’s revenue was climbing, its cashflow became increasingly negative.”
“The real problem with WeWork is that its whole business model is flawed with excessive leverage. There’s really nothing special about what they do – providing shared office space to short term tenants,” he added. “But when the economy starts to turn and new business startups decrease or fail more because of the risk of recession, that’s when a company like WeWork could really be exposed and have tremendous downside risk.”