The real estate market has gotten as hooked on WeWork leases as WeWork has gotten on SoftBank cash. For almost any space over 5,000 square feet that comes available in markets like New York, San Francisco, and dozens more, WeWork has a bid in. This, along with general economic expansion, has pushed rents to all-time highs. In Manhattan, asking rents hit $80.25 psf in Q2, an all-time high and 9% higher than the same time last year.
If WeWork’s IPO is a success, this trend is expected to continue as pressures from a new set of investors push WeWork to continue accelerating expansion. If the IPO is unsuccessful, showing that new investors prioritize profit over growth, or is pulled, leaving WeWork with less cash than planned, losing the WeWork bid could have a negative impact on commercial real estate markets worldwide.
I do think that a short-term pullback could present a long-term opportunity for the flexible workspace market to thrive. The chart above describes the Gartner Hype Cycle, which most new technologies or trends go through. Something is new and shiny, attracts a lot of investment and hype, ignores the underlying business or market needs while focusing on growth, fails to meet inflated expectations, and crashes. But the underlying technology or idea is strong, so smart, committed people keep working to make the thing a reality on a more realistic timeframe. And then the technology or idea is adopted in a way that makes financial sense, before becoming a part of the mainstream.
If an unsuccessful WeWork IPO causes trouble for WeWork and a pullback in the commercial real estate market, it will allow the companies who are solid operators to work with landlords and customers on building the businesses and products that will shape the way that people rent space to work for decades to come. If the WeWork IPO is a huge success, 🤷🏻♂️.