IT ALL LOOKED so bright in June 2018.
The year before, WeWork had raised $760 million, taking its valuation to $21 billion. This would more than double to $47 billion just months later.
Investors were euphoric about the potential of the company – which rents out buildings and then leases them out again, normally as trendy coworking spaces – to revolutionise the modern office.
From an Irish perspective, the company had just been announced as the anchor tenant to the Central Plaza scheme, which centred on redeveloping the old Central Bank building on Dame Street in Dublin city centre.
WeWork was to take over almost the entirety of the nine-storey old building. It was hoped this would create a beacon for Ireland’s modern economy – a huge, modern coworking hub in the heart of the capital, where the best and brightest would mix and innovate.
Anyone with a passing familiarity of WeWork knows where this story is going – downwards.
The US firm is deep in crisis, with reports earlier this week revealing it intends to file for bankruptcy in an effort to restructure its debts.
Shares have tanked. The price of the company’s stock has more than halved since the bankruptcy reports came to light and is down by about 99% in the last year alone.
Weighed down by a combination of factors – from a massive debt pile to mounting losses to the increasing prevalence of work from home – WeWork is now in serious danger of going out of business.
WeWork’s strategy was inherently risky. Essentially acting as a middleman between a landlord and a tenant, the company relied on marketing itself as a kind of tech firm to get investors excited.
There is some merit to its model. Giving tenants the option of just leasing small co-working spaces, rather than entire office floors or buildings, can be useful for many small traders or startups.
The problem was how WeWork over-extended itself. Borrowing massive amounts of money, the firm aggressively expanded, taking out long-term leases in prime offices around the world.
It did the same in Dublin, becoming one of the largest players in the capital’s commercial property market.
As well as the office space at Central Plaza, the company has a presence at Harcourt Road and the Charlemont Exchange near the Grand Canal and the 2 Dublin Landings building in the docklands.
While it was banking on the co-working model delivering full buildings, since the pandemic, occupancy at its offices has hovered at around 75%.
While WeWork isn’t done for yet, the future looks bleak.
This is where Ireland, or more specifically, Dublin, comes in. As the company’s struggles could hardly have come at a worse time for the capital’s commercial property market.
Although not to the same extent, many commercial property firms are suffering from similar problems to WeWork.
High interest rates and climbing levels of office vacancies have dented the sector. In 2018, when WeWork agreed to take over the old Central Bank building, prime new offices were being snapped up before they were even built.
Now, less than a third of offices under construction are pre-let and it is predicted the vacancy rate in the capital could hit around 17% by the end of the year. The major problem seems to be a simple one of oversupply, exacerbated by many tech firms cutting their headcount last year and landlords being slow to cut rents.
The collapse of a major player in the space would be another body blow for the market.
Central Plaza
The Central Plaza project could be viewed as symptomatic of WeWork’s decline – big plans which have proven tough to execute.
When the firm was announced as the anchor tenant in June 2018, it was envisaged it would be in the building before the end of 2019. While Covid happened, the opening date was pushed back multiple times even after the pandemic had eased.
WeWork signalled earlier this year that it wanted to renegotiate nearly all of its leases around the world, as many of these were agreed at high prices in a pre-Covid world.
Despite this, as recently as September, Hines, the developer behind Central Plaza, said WeWork was on course to open in Central Plaza in May 2024.
Even if WeWork does get Central Plaza up and running as planned, occupancy could well prove to be a major challenge.
With high commercial vacancy rates generally, several analysts have predicted somewhat of an easing of demand for coworking spaces, especially as work from home has stuck around.
With prices starting from €45 a day for a hot-desk, it isn’t too far-fetched to think WeWork may struggle to fill the building. Not a pleasant option to consider for a company in need of cash as fast as WeWork.
Dublin’s office market is predicted to bottom around the middle of 2024 – unfortunately for WeWork, right around when its Central Plaza floors are set to finally open. If the company is still even trading by then.
For both WeWork and Dublin’s office market more generally, things could well get worse before they get better.
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