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WeWork IPOsion won’t hurt NYC office leasing, say experts

A pull-back by WeWork, New York City’s biggest office tenant, won’t crush the city’s leasing sector, according to its biggest landlord.

Speaking at the 2019 Global Real Estate Conference hosted by Bank of America Merrill Lynch in New York earlier this month, SL Green leasing director Steve Durels said every large tech tenant in the world is headed for New York City “in a big way.”

“We did a tour of the west coast at the beginning of year and the feedback we had was that every large tech tenant we met with, every brand name we all know, communicated to us that they were coming into NYC in a very big way,” said Durels. “Whether that’s Google, Microsoft, Facebook – all these guys are turning their attention to the East Coast because its gotten too expensive on the West Coast. And it’s no longer about little boutique buildings – they need big buildings with big infrastructure.”


SL Green, he said, was “trading paper” with “companies of size” for its under development One Madison tower. “It’s a good barometer for a building that doesn’t deliver until 2023 that we are engaged with tenants who need big footprints with all the bells and whistle they are looking for,” Durels added.

Wework has a small footprint within the SL Green portfolio, building out just 150,00 s/f at 609 Fifth Avenue with co-working space to open next year, and an enterprise space fully leased to Amazon at 2 Herald Square.

“We put them in the context of our exposure to the coworking industry as a whole,” said Durels. “We are very focused on risk perception – not just the length of the lease, but the credit profile, not having too much exposure to any one industry. We are very conscious about not being overexposed to the coworking industry. We think they are valuable part of our portfolio but with modest exposure.”

While the TAMI sector continues to play a huge part in the New York leasing market, Durels pointed out, “It’s a different profile of tech tenant that’s in the market today from 10 years ago.

“They are migrating from the west to the east coast and these are well established, big brand name companies, highly profitable firms, the top companies in the world – that wasn’t historically the tech industry in New York and that’s a big headline change.”

After opening a Manhattan satellite office, Google is now a gigantic force in the market, noted Durels, adding, “We are seeing their peer group do the same thing. Whether its Facebook, Amazon, IBM, Netflix – all big, well established companies when before it was small, boutique startups funded by venture capital. Those firms are there, but these are not the drivers of the marketplace.”

Following We Work’s decision to halt its IPO and the resignation of CEO and founder Adam Neumann, industry watchers say the market is showing no signs of impending implosion.

Currently, coworking space accounts for 12-15 percent of the office market, and according to the Real Estate Board of New York, and this number isn’t likely to decline because of WeWork’s troubles.

“The news stories we’re seeing makes it seem like the sky is falling and it’s not,” Laura Tomana, REBNY’s senior economist, told Real Estate Weekly. “The office economy is strong and we don’t see a slowdown in office leasing activity.”

While WeWork is the largest operator and the largest private leaseholder in Manhattan, it still occupies just one percent of the city’s office space. This translates to seven million s/f out of a total of roughly 550 million s/f of office space in the city.

With the postponement of its IPO, it’s unclear if the company will continue its aggressive growth campaign. WeWork now has branches in 111 cities in 29 countries, serving over half a million members each day.

Tomana said as far as leasing to coworking outfits is concerned, “We don’t view it as a risk” for owners.

Other stats shared by REBNY also paint a rosy picture for the office market, made strong by jobs growth.

They include the fact that there is currently 15 million s/f of commercial space under construction in New York and projects scheduled for 2019 completion have been 90 percent leased.

The commercial sector currently has a 6.9 percent vacancy rate, though in new development, the vacancy rate is even lower at three percent. During the second quarter of 2019, 18 million s/f was leased.

“This is the highest amount of transactions in the last 25 years,” said Tomana. “It’s definitely a strong market.”

A report issued in mid-September by CBRE, “Let’s Talk About Flex,” indicated the flexible office space market is poised for further growth, even in the event of a recession, as landlords get more comfortable with the concept over time.

In Manhattan, flex space has tripled in the past five years to 15 million s/f or 3.6 percent of total office inventory. This has made Manhattan the largest flex market by far, with three times as much space as second place Los Angeles. Manhattan flex space has grown by 9.5 percent in the first half of 2019 alone.

WeWork accounts for 33 percent of flex space in the U.S. and 61 percent of year-over-year supply growth. IWG’s Regus brand is the second biggest flex operator by size while its Spaces brand is the second-largest operator by supply growth behind WeWork.

Knotel, Industrious and Convene round up the top five operators by growth. Four other coworking companies, CommonGrounds, VentureX, Serendipity Labs and Common Desk are not in the top ten largest list of operators, but are among the fastest growers in volume.

CBRE expects that the 10 largest flex markets in the country (also all tech markets) will continue to outpace other markets after growing by 70 percent since 2017.

CBRE also suggests the industry is “ripe for consolidation,” noting that in 2019, Techspace was acquired by Industrious, DeskHub was acquired by Cross Campus and Link Coworking was acquired by Common Desk.


“Flex space is no longer a niche offering hidden among building stacks of longterm leases,” said Nicole LaRusso, CBRE’s tri-state director of research and analysis.

“Not only is it prominent in the buildings that it occupies but it is also at the heart of real estate strategies from landlords to corporate occupiers. The flexible real estate model has long been a viable solution for freelancers remote workers and start-ups, but now represents a structural shift that is rapidly gaining ground among larger enterprises because of the flexibility, speed and capital deferral it allows that is not widely available through traditional leasing.”

– Additional reporting by Sabina Mollot

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