WeWork’s latest announcement to renegotiate its commercial leases amidst “substantial doubt” about its future. If your business is affected by WeWork, now is the time to take stock writes Stephen Smithers, a Solicitor in our Litigation & Dispute Resolution team.
WeWork’s downturn in recent years is well-documented and you could be forgiven for being surprised to hear they are still limping on. Their latest announcement confirms plans to renegotiate almost all of its leases and preparing to leave “unfit and underperforming locations”. Landlords may be justifiably concerned about risks to their assets and income, whilst increasing pressure faced by WeWork makes its collapse a real risk.
WeWork burst onto the scene quickly following its inception in 2010, and enjoyed unprecedented success through its popular vision of coworking offices as spaces for “entrepreneurial hustle fuelled by communal ping pong and kombucha“. Essentially, WeWork’s business model is to rent buildings from property owners at one price, invest in and customise them, and then rent them out to clients at higher prices. Investors and customers alike were initially hooked on the idea, creating a storm of investment and growth which inevitably would be challenging to contain and sustain.
At its peak in 2019 WeWork was valued at roughly USD $47 billion. WeWork imploded in 2019 when attempting to list shares to the public. The pandemic changed its clients’ perceptions of the office reducing demand, while high subsequent interest rates turned investors away. These factors have dramatically altered WeWork’s financial prospects and their current estimated valuation sits at USD $230 million.
Last month, WeWork expressed “substantial doubt” about its ability to continue as a going concern. As such, WeWork’s apparent ability to continue is contingent upon successful execution of its plan to improve liquidity and profitability over the next 12 months.
On Wednesday 6 September WeWork announced that its “current lease liabilities – which were over two-thirds of total operating expenses in the second quarter – still remain too high”. As part of its strategy to “remain a global flex space leader” it intends to “seek to negotiate terms with our landlords that allow WeWork to maintain our unmatched quality of service and global network”.
WeWork rode the wave of an era of easy tech funding which facilitated its boom into the market, and commentators have been quick to highlight its “attempts to act like a tech start-up when it is fundamentally a property business”.
In London, 49 London locations are currently occupied by WeWork at 3.2 million square feet which is a reduction of 800k square feet since its peak in 2019. However, this scaling back of premises occupied is not proportionate with WeWork’s plummeting estimated value. Landlords will be justifiably concerned that calls for renegotiated lease terms may lead to late or non-payments of rent.
Given the increasing pressure that WeWork are now facing, parties affected by WeWork’s boom and possible bust may wish to take stock and consider options. Professional guidance through any commercial lease negotiations or disputes, together with swift implementation of expert advice in the event of any tenant or creditor-issued insolvency process, will be key to protecting the positions of interested parties.
Stephen Smithers is a solicitor in the Bishop & Sewell Litigation & Dispute Resolution team.
If you would like to speak with Stephen, or any member of the Litigation & Dispute Resolution team, contact Bishop & Sewell by email to: litigation@bishopandsewell.co.uk
The above is accurate as at 4 October 2023.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
