As if office space investors and owners haven't been battered enough with rising vacancy rates comes news that one of the nation's most prominent tenants, WeWork Inc. (NYSE: WE), is teetering on bankruptcy.
Few cities don't have a downtown building with the WeWork logo emblazoned at the top, but the company told the Securities and Exchange Commission (SEC) this week they could soon be adding to the nation's office space woes in a big way.
"Our losses and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern," the company wrote in its filing.
Once valued at $47 billion, WeWork has suffered from a combination of mismanagement and the after-effects of the pandemic, leading many businesses to cancel their leases in favor of employees working at home.
"Flexible workspaces have a future in the office ecosystem, but WeWork, in its current state, may not," analysts at global financial services firm BTIG wrote as they downgraded the stock to Neutral. WeWork's stock plummeted to 13 cents per share on Wednesday. The company also had a net loss of $700 million in the first half of 2023 after suffering losses of $2.3 billion in 2022.
But not all is lost for the coworking concept. CoStar Group's Convene is now faring much better with an additional focus on corporate meeting and event venues. The company, which is now the largest provider of corporate meeting and event venues in North America, has also kept its coworking tenants intact with an 80% occupancy rate at an average lease term of 15 months.
This is a huge upswing for the company, which suffered mightily like every other office-related business during the pandemic. Its revenue fell 66% in 2020, a year when in-person events were impossible. Last December, the company admitted it had "overinvested" and had to cut dozens of jobs in New York and close one of its Chicago locations.
But in 2023, Convene says 75% of its tenants are renewing their agreements. While unwilling to comment on WeWork's issues, Convene head of real estate Brian Holland told Benzinga that the 14-year-old company had rebounded this year because it has been purposeful and deliberate in its growth strategy, which includes Chicago, New York, Boston, Washington D.C., and, later this year, San Francisco.
"We've been disciplined and methodical and haven't overextended ourselves," he said. "From a deal standpoint, most of our growth has been through capital light agreements."
Holland added that he doesn't see coworking companies as competition. Convene competes with hotels, though the company has worked well with hospitality venues that come to it for short-term events and conferences that don't include overnight stays. He says Covene's concept is about giving tenants space and food and going the extra mile.
"Having hospitality and amenities in our space are table stakes right now. It's a binary outcome for building owners. Our idea, even at the beginning, was making an office building feel like a full-service hotel," he said. "Our DNA is as a hospitality company."
According to CoStar research, new office space leases across the U.S. have decreased by 12.5% as companies continue to shrink their footprints while dealing with hybrid work schedules. Renewals are also drastically down. Those numbers have contributed to a lot of phone calls to Convene from office building owners and investors looking to fill vacant space.
"The meeting and events business is becoming a huge amenity for building tenants. Landlords aren't equipped to do that business, and they're much better off contracting with us," Holland said. "We do get a lot of calls and our discipline now is we are learning to say no."