WeWork leases in Soho, Flatiron most at risk: report

Co-working giant pays very close to market rate in those two neighborhoods

WeWork leases in Soho and Flatiron could be in trouble, according to a report (Credit: iStock)
WeWork leases in Soho and Flatiron could be in trouble, according to a report (Credit: iStock)

WeWork’s recent struggles could put many of its leases in jeopardy. But according to a new report, its Soho and Flatiron deals are the most vulnerable if co-working rates drop.

The company’s lease obligations are only 2 percent below market rate in Soho and 4 percent below in Flatiron, the report from Ackman Ziff says.

The firm’s average rent in Manhattan is $58.91 per square foot, 20 percent below the average rate of $74.15. Its highest concentration of space is in the Financial District, where it leases 1.3 million square feet at about 16 percent below market rate.

Contractual rent increases for WeWork leases over the next five years will amount to a growth rate of 6.3 percent overall, according to Ackman Ziff.

Ackman Ziff’s Marion Jones and Jason Meister authored the report, which found that WeWork still occupies a relatively small amount of space in the city.

“Even though they are the largest office tenant in the city, it still, percentage-wise, is a small footprint relative to the larger market,” Jones said.

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WeWork occupies 6.5 million square feet throughout New York City and comprises 56 percent of its co-working market, according to Ackman Ziff. Regus takes up 15 percent of co-working space in New York City, while all other co-working firms combine for 29 percent.

The city’s co-working sector spans 11.6 million square feet overall, which is less than 2 percent of occupied office space in the city, according to Ackman Ziff.

However, co-working firms have leased 8.7 million square feet in the city since 2017, making up 53 percent of New York’s net absorption in recent years, the report notes.

“There will be certain landlords in New York City that will feel pain if they walk from some of these commitments and create vacancy pressures in those buildings, in those submarkets,” Meister said of WeWork.

WeWork did not respond to a request for comment on the report.

The firm has faced a multitude of issues since preparing for an initial public offering earlier this year. CEO and co-founder Adam Neumann stepped down from the company in the wake of widespread criticism about its IPO rollout, and about 20 other executives have left this year. The firm’s new co-CEOs, Artie Minson and Sebastian Gunningham, have since postponed the IPO, although they say they still want to have one eventually.