Once one of the largest holders of commercial real estate in the United States, WeWork has filed for Chapter 11 bankruptcy. At its height, the company was worth an estimated $47 billion during a round of venture capital in 2019. However, a combination of economic factors and external economic factors have led the company to fall on hard times, leading to them seeking bankruptcy protection.
What is WeWork?
WeWork is a commercial real estate company that rents out office space to small businesses, as well as arranging for virtual office space for its members. Its major innovation was renting out office space in shifts, meaning that multiple businesses or employees could share the same office space. As of 2022, WeWork held nearly 800 locations across 39 countries, with more than 500,000 members making use of its services.
Why is WeWork Filing For Bankruptcy?
Despite a theoretically safe business model, WeWork consistently ran deficits early in its operations as it rapidly expanded its holdings across the United States, and then across the world. It was able to keep up this rapid expansion thanks to several rounds of venture capital investment, but this rate of growth left it with significant mortgage obligations it struggled to pay back. This only became worse when the COVID pandemic hit in 2020, which caused many people to pull out of their contracts, leaving WeWork with a great deal of office space that it struggled to rent out.
Why Is WeWorkâs Bankruptcy Important?
WeWork filing for Chapter 11 bankruptcy is, in many ways, a sign of the state of the commercial real estate market. The company was, at one point, one of the largest holders of office space in the United States, and its struggles to fill those offices indicate the change in the zeitgeist that has led many companies to shrink or eliminate their office holdings. Thus, what was once a promising real estate venture now seeks bankruptcy protection to sort out their debts.
What Does This Mean For the Market?
This indicates some likely difficulties that will occur in the commercial real estate market in the near future. While WeWork was unusual in the sheer amount of office space it owned, it is far from the only company that still has significant amounts of office space that it struggles to find use for. In some ways, this may be the first sign of coming troubles for the market, as companies start to sell off their offices to a shrinking list of prospective buyers.
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