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WeWork is ditching a major Manhattan office it hasn’t even moved into yet — and it’s the first big step in a turnaround that’s put its entire real-estate portfolio under review


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WeWork is cutting ties with a 115,000 square foot Manhattan location it leased almost two years and that it was set to occupy before the end of the year.
The struggling coworking company has been in talks to renegotiate its rents and potentially dispose of locations for months, but this is the first major location shed so far by the firm.
The deal could be an ominous sign that WeWork is readying to finally cull its vast portfolio in a way that could sink the office market with large blocks of vacant space.
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WeWork won’t move into a large New York City office it leased nearly two years ago at 149 Madison Avenue and that it was scheduled to occupy before the end of the year, multiple sources with direct knowledge of the space confirmed.

The lease, for the Midtown South building’s entire 115,000 square feet, could cost the struggling coworking giant millions of dollars to sever ties with, sources said.

Both a spokeswoman for WeWork and a spokesman for Columbia Property Trust, the owner of 149 Madison Ave., declined to comment.

Two leasing executives told Business Insider that Columbia Property Trust had begun in recent days making it known to the city’s office leasing industry that the space is available to other takers and that WeWork will not take possession of the office.

Read More: WeWork’s US head of real estate is leaving the coworking giant as the firm works through a major turnaround attempt.

WeWork has been in negotiations with building owners for months to reduce the rent it pays at locations, or even cut ties with spaces altogether, as it grapples with the aftereffects of the coronavirus crisis, which has sapped demand for offices and prevented tenants from occupying the workplace.

IBM, for instance, will vacate a roughly 70,000 square foot space it has leased for the past three years from WeWork at 88 University Place in Manhattan sometime after Labor Day.

The computing firm previously told Business Insider that the decision to leave was not prompted by the Covid-19 pandemic. Still, its exit highlights the vulnerability of the flexible-workspace business model during periods of economic strain, where tenants have the leeway to abandon space even as providers such as WeWork remain on the hook for long term leasing commitments.

WeWork’s decision to exit 149 Madison Ave. marks one of the first major US spaces to be shed outright by the coworking company and a potentially ominous sign it could be close to culling other locations within its sprawling office footprint.

The company had grown in recent years into New York City’s largest office tenant and a dominant occpuier in other leading office markets across the country, including San Francisco. If it casts spaces on the market, those availabilities could add to a growing inventory of vacancies that could rapidly sink occupancy and rental rates, causing market conditions to deteriorate for landlords.

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Source:: Business Insider

      

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