WeWork’s D.C. Head Says It Will Grow Again, But Listless Office Market Isn’t Holding Its Breath

WeWork has not leased a new D.C. office space in the six months since its high-profile IPO implosion, a hiatus that has hurt an office market already suffering from record-high vacancies.

The company plans to continue growing its local presence, its D.C. head told Bisnow in an interview, but D.C. office brokers don't expect to see any new WeWork deals in the near future.

"The commitment we've made in D.C. is a pretty large one, and one of the largest we've made in the U.S.," WeWork Northeast and Mid-Atlantic General Manager Lex Miller told Bisnow. "Since we've already made a large commitment, it's safe to say we'd be looking at a strategic way to continue to grow."

While it may continue growing in the future, WeWork does not appear to be actively searching the market for new spaces, according to D.C. office leasing experts Bisnow spoke to this week. 

"What we've seen here recently with WeWork is a termination of any new requirements," Lincoln Property Co. Managing Director Adam Biberaj said. "When things went sideways with them for the IPO, they put on the brakes for all new requirements in this market."

Biberaj said WeWork had been in negotiations for an 18K SF space at 111 K St. NE, a building his team leases in NoMa, but the coworking provider pulled out of the talks in October. Shooshan Cos. Chairman John Shooshan told Bisnow in November WeWork had recently backed out of talks to lease space at its 4040 Wilson Blvd. building in Ballston.

The company's pause in activity comes after a turbulent period highlighted by its failed attempt to go public, the resignation of its founder and a takeover from SoftBank at a fraction of its previous valuation. Avison Young principal Jonathan Wellborn also said he is not seeing WeWork touring the market for new D.C. locations. 

"It has been extremely quiet from WeWork since the last [lease] was signed in Q3," Wellborn said. "I think it's fair to say that the new, updated valuation of the company has corresponded with a decrease in their appetite for additional space."

Savills Corporate Managing Director Jon Glass said he also hasn't seen any indications that WeWork is looking to grow its footprint in the near future. 

"It has been pretty quiet in terms of them looking for new locations," Glass said of WeWork. "I think they're pretty well-established and probably just looking to get their occupancy filled."

WeWork's six-month leasing hiatus represents a significant shift from the company's previous string of deals. Between December 2018 and August 2019, WeWork signed eight new D.C. leases totaling over 550K SF. The deals brought the company's footprint in the D.C. area to more than 1.7M SF across 22 locations, according to CBRE. 

The coworking provider's leasing activity served as a main driver of D.C. office demand in previous quarters, and its slowdown led the market to experience a sluggish Q4. 

"This is really the first quarter that we're seeing the fallout of what has been going on with WeWork's struggles, and it was a quarter of no WeWork leasing, which is something we haven't seen in the last year or two," Savills Vice President and Head of Americas Research Sarah Dreyer told Bisnow last month. 

The slowdown in WeWork's leasing activity, while painful to the market, was a shift that people saw coming, Biberaj said. 

"Most people in the market were under the impression there wasn't a possible way to continue opening new locations at the blistering pace they had been," Biberaj said. "At some point, you just have too much supply."

As WeWork has stopped signing new leases, the company has begun to open the spaces to which it committed. In recent months, it opened a full-building, 104K SF space at 1701 Rhode Island Ave. NW, a 110K SF space at Midtown Center and a 25K SF space at 660 North Capitol St. NW.

Miller said occupancy is doing well at each of these locations but declined to provide specific figures. A WeWork spokesperson shared examples of members that have signed on at 660 North Capitol, including car-sharing company Free2Move and two higher education institutions: Stony Brook University and Baylor University. 

Miller said the decision to open each space was driven by feedback from their customers in the market. The 660 North Capitol lease, he said, was especially driven by its location. 

"We're excited about this location because it was demand-informed," Miller said. "As we think about expanding our footprint in D.C., one of the things we kept hearing from members was 'do you have a location close to Union Station?' This property for us was meant to serve that need."

The company plans to open its 107K SF space at 655 New York Ave. NW and its 67K SF space at 700 K St. NW in the coming weeks, Miller said. He said WeWork has already pre-sold memberships for more than half of the 700 K space ahead of its opening. 

The 700 K space sits less than a half-mile from three other WeWork locations, a strategy that Miller said was intentional. He described the clusters of WeWork locations as "campuses" and said they allow WeWork members to book meeting rooms at nearby locations that may better accommodate their needs. 

"There are definitely advantages to creating a campus in terms of the amenities, features and offerings our members have access to," Miller said.

WeWork's wave of D.C. openings comes after its founder, Adam Neumann, stepped down as CEO in October. Earlier this month, WeWork announced a new CEO, former GGP CEO Sandeep Mathrani. He started work last week, and immediately was faced with new revelations about the company's workplace culture, including sexual misconduct and drug use, under Neumann.

Miller said members have been curious about what the shake-up means for the company, and he said his team has expressed excitement about the new leadership. 

"I'm excited about bringing in folks with seasoned records in the real estate business that know how to run, operate and grow, and I think our teams are excited about it," Miller said. 

While brokers haven't seen WeWork searching D.C. for new spaces in recent months, they have seen competing coworking providers touring the market. 

Biberaj said he has seen flexible workspace providers including Industrious, Mindspace and Knotel seeking new D.C. spaces. 

"We've seen every other coworking group in town continue to grow and continue to come around the market touring options, with a little more attention to grow in a smart manner and not take too much space," Biberaj said. 

Wellborn said his team works with Convene, which signed two D.C. leases last year totaling over 150K SF, and he said it continues to look for new spaces in the market. 

"We represent Convene downtown and they've continued to be exploring opportunities in the market, as have Spaces, Industrious and Mindspace," Wellborn said.

WeWork is not concerned about the increase in competition from other coworking providers in the District, Miller said, as it bases its leasing decisions on demand it already sees in the market for its own offering. 

"One thing it may do is validate that a lot of companies want to do business in D.C., which is great for the city," Miller said. "I hope all of the companies in D.C. continue to grow and create jobs and opportunities."