WeWork’s star continues to dim, with Google moving their business elsewhere.
The multinational tech company has walked away from a potential Toronto lease with WeWork after months of negotiations, agreeing instead to take space from rival co-working firm IWG Plc, people familiar with the matter told Bloomberg.
Google signed a multiyear deal for about 24,000 square feet across two floors at IWG’s Spaces location in Royal Bank Plaza, in the heart of the city’s financial district, said the people, who asked not to be identified because the matter is private.
Google has been expanding in Toronto and was negotiating in June to rent space at an upcoming office development downtown. The city’s downtown office market ranks among the tightest in North America, thanks to growing financial-services and tech companies and a shortage of space.
The tech giant had reportedly been in talks with WeWork to rent space in its planned location at 357 Bay Street. It’s unclear why discussions for that site fell through. WeWork, the SoftBank-backed startup, has been reeling since it shelved an initial public offering and is seeking rescue financing before it runs out of cash as early as next month.
Just last year, WeWork was planning a massive increase in its presence in Toronto, increasing its locations there to at least 20 by 2020. The failed deal with Google marks another loss for WeWork as the company struggles to find its footing after the abandoned IPO. The firm has been selling off stakes in investments, planning far-reaching job cuts and reining in expenses. It recently scrapped a project in Seattle.
Coworking space alive and well
In spite of WeWork’s continued fall from grace, other players in the coworking arena see opportunity to gain market share. IWG Plc has the largest piece of the pie at 32%, but other companies such as Industrious and Convene are also battling to capture the eyes, ears, and minds of those interested in the concept of coworking. They’re pitching themselves to tenants and landlords alike as more stable providers of flexible office space.
“You have to separate the issues at WeWork from the co-working business model,” said Tamara Lawson, chief financial officer at QuadReal Property Group Ltd., at the Bloomberg Canada Fixed Income Conference in New York.
Lawson said QuadReal doesn’t have any business with WeWork, but the firm does invest in some of its rivals, including Convene.
A recent CBRE report projects that flexible office spaces are projected to reach more than 6.1 million square feet by the end of the year, up nearly 300% from 2014.
Even though it only currently represents a small fraction of the commercial real estate market, the demand remains, and its bigger than WeWork.