WeWork renegotiates office leases amid CRE market chaos

Company makes bold moves to cut costs and rightsize

WeWork renegotiates office leases amid CRE market chaos

WeWork is doing anything to stay afloat amid a turbulent commercial real estate market, including renegotiating nearly all of its office space leases with its landlords from around the globe.

As part of the negotiations, the SoftBank-backed group plans to exit "unfit and underperforming locations" in a bid to reduce costs and rightsize its co-working space business. The move reflects WeWork's ongoing struggles following a period of unsustainable hypergrowth – another troubling sign for the commercial real estate market.

"WeWork has been on a years-long transformation to resize our cost structure, grow sustainable revenue, and strengthen our balance sheet," WeWork CEO David Tolley wrote in a letter on Wednesday.

Tolley admitted that despite the actions they've taken to reduce current lease liabilities – which were over two-thirds of the company's total operating expenses in the second quarter – the costs remain "too high and are dramatically out of step with current market conditions."

Those tumultuous market forces refer to elevated interest rates, declining property values, and office vacancies that are all contributing to the slowdown in the commercial real estate sector.

Read more: Why the commercial real estate landscape is both bright and dark

According to a Bloomberg report, the value of office buildings that were financially troubled or already repossessed by lenders spiked 36% from the first quarter to roughly $24.8 billion in the second quarter.

WeWork sees this widespread weakness in the CRE industry as a chance to strike better lease deals. They might have the upper hand if they hint at walking away from the lease altogether.

"We will seek to negotiate terms with our landlords that allow WeWork to maintain our unmatched quality of service and global network in a financially sustainable manner," Tolley said. "This process has no impact on our commitment to delivering for our members, and, for the most part, we expect no changes to our day-to-day operations. We intend to remain in the majority of our buildings and markets."

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