WeWork’s bankruptcy filing could not have come at a worse time for commercial real estate markets across the U.S., as recent reports indicate 20% of U.S. offices are vacant. Major cities like Boston, New York City, and San Francisco, which already face high office vacancy rates, are particularly at risk — 42% of WeWork’s occupancies are in those three cities.
According to a report published by Bloomberg, WeWork’s financial woes are forcing a renegotiation of all its leases and the company plans to terminate nearly 70 leases imminently, which will flood markets with an excess of office space.
The Monday news of WeWork filing for Chapter 11 bankruptcy protection has caused investors and landlords to brace for immediate, hard-hitting ripple effects. As WeWork seeks to exit leases in major cities, landlords are left grappling with the prospect of vacant properties and the challenge of finding new tenants in markets that are already saturated with available spaces.
In San Francisco, for example, the termination of WeWork’s lease at 1455 Market St. would add to the city’s struggling office market. The situation is similar in New York City, where WeWork holds leases for a significant 4.2 million square feet of real estate. The impact on landlords is profound, with companies bracing for more unpaid rents, lower occupancy levels and potential defaults through 2024, according to Bloomberg.
For cities like San Francisco, New York, and Boston the fallout from WeWork’s bankruptcy could lead to a dramatic change in commercial real estate strategies in the coming months and into 2024.