WeWork’s bankruptcy marks the latest blow to the commercial real estate (CRE) market – particularly the office building segment. Despite a restructuring that helped the firm open up $1 billion in capital less than eight months ago, the co-working giant succumbed to cost pressures and elevated interest rates that has made refinancing a difficult prospect for many in the CRE space.
WeWork’s potential offloading of many leases in the course of its bankruptcy could increase the supply of office space and depress rent prices in key metropolitan markets. As delinquency rates on CMBS loans continue to rise, occupancy levels among office spaces are still struggling to recover throughout the US. This is putting a deep freeze on new CRE lending, which is expected to fall by nearly half in 2023.
Related ETFs and REIT: Boston Properties, Inc. (BXP), iShares CMBS ETF (CMBS), ProShares Short Real Estate (REK), SPDR S&P Regional Banking ETF (KRE)
The bankruptcy of WeWork, which finalized a prolonged decline in the company’s business, is emblematic of persistent issues facing office properties in major metropolitan areas across the US. WeWork, which was valued at $47 billion in private markets just four years ago, never reported any operating profits as it bore the brunt of COVID-induced lockdowns, lingering work from home arrangements, and an interest rate surge that weighed on its debt-fueled portfolio of leased office space. WeWork’s failure follows a restructuring that helped the company cut its debt and secure roughly $1 billion in capital less than eight months ago, indicating that cost cutting measures were simply not enough to mitigate the damage being wrought by high interest rates and stagnant occupancy. More than one-fifth of offices across the United States remain vacant, according to JLL.
The WeWork collapse will likely worsen the situation facing office property owners, as the company maintains more than 600 locations throughout major cities. In New York City alone, Bloomberg reports the company plans to dump 40 leases that now have “limited to no benefit” to the company as it navigates bankruptcy. Higher vacancy rates in buildings increases…
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