Seattle Shrugs At WeWork's Red Flags

Seattle’s fourth-largest office space occupier, WeWork, filed its prospectus for an initial public offering last week, a document full of ominous warnings about the firm’s financial strength. So why is the Seattle CRE community shrugging off its potential threat?

The filing shows that despite $1.82B in claimed revenue, the company is still operating at a net loss, ending the first half of the year $690M in the red. But the prevailing thought in Seattle is that if WeWork goes under, something else will fill its vacancies.

“I think if WeWork were to shut its doors, the Seattle office market is strong enough that its vacated space would be absorbed relatively quickly,” University of Washington Foster School of Business senior lecturer Tracey Seslen said.

“Its vacancies would be filled by either another co-working company, such as the larger, profitable IWG, or another tech firm. With 6.5M square feet of office under construction in downtown Seattle, developers don’t seem to think there’s going to be a market slowdown.”

The We Company, WeWork’s parent company, did not provide its targeted share price. It did, however, list several risk factors, including the fact that the business grew rapidly and could fail to manage its growth and is susceptible to economic downturns.

WeWork currently occupies about 1.7M SF of office space in the Puget Sound, mostly in the Seattle and Bellevue markets. In the Seattle market, WeWork’s presence grew from four locations in 2017 to 12 as of March 2019. At that time, it expected to grow to 22 locations in the Seattle and Bellevue market by the end of this year.

“There is a lot of competition for real estate and flexible use of real estate,” WeWork Vice President and General Manager Gina Phillips said at the time. “We are being very aggressive here. More so than other markets in the U.S.” 

A flagging WeWork IPO also won’t hurt the coworking industry in general, Deskpass executives told Bisnow. The CEO and co-founder of the flex-office space app said that while WeWork has been an important part of the rise and awareness of coworking, the industry is still in its early stages.

“There are now 35,000-plus coworking spaces in the world, and their penetration in the 280 key cities they focus on is barely 0.2%,” Deskpass co-founder and CEO Sam Rosen said.

Deskpass co-founder and Chief Community Officer Nicole Vasquez added that WeWork has always been the indicator that coworking is not just a trend, it’s a movement. 

“As the cost of living and operating a business continues to rise, the sharing economy will continue to grow stronger,” she said. “We partner with more than 325 workspaces across 11 U.S. cities already, a lot of whom have recently raised funding and have plans to expand quickly. Many coworking companies look to WeWork as a barometer for the industry and receive validation of their own expansion plans because of the success of WeWork.” 

If WeWork fails, the coworking industry will continue to thrive, she said.

“I believe there will be a rise of niche spaces as more coworking companies open,” she said. “The best way to compete, in my opinion, will be to have a clear value prop and an identity-based community such as digital creatives, working moms, e-commerce companies and others.”

WeWork declined to comment on last week’s filing. However, Colliers International Executive Vice President in Seattle Tony Ford told Bisnow: “The additional funds from the IPO will likely allow WeWork to push the gas pedal down even harder on its continued global expansion.”

In the Puget Sound, enterprise companies such as Sonos, Pinterest and Walmart Labs Innovation make up 80% of the total WeWork membership. The firm continues to seek Class-A office space, Phillips told Bisnow in March.

WeWork reported that in 2019 it leased 10,000 desks with 13,000 in the pipeline for delivery by the end of this year. So far in 2019, it opened locations at 255 South King Street and 501 East Lake and added additional floors at its 500 Yale Ave. and 925 Fourth Ave. locations. WeWork has also signed leases at 1525 11th Ave. on Capitol Hill and at 1203 Third Ave.

By the end of 2019, WeWork plans to have 26,435 desks in the Puget Sound market. The top office space occupier is Amazon with 13.4M SF, followed by Microsoft at 13M SF and Boeing at 5.8M SF.

Seslen said she is less concerned about flexible office space firms, like WeWork, than she is about those who use the spaces. 

“I think it’s reasonable to say that if a recession hits, the users of flex office will be on a more vulnerable position than companies whose size and stability puts them in a position to commit to traditional long-term leases,” she said. “The important question may be: Which will come first — a recession or a WeWork collapse?”