WeWork Inc.’s plans to exit three Metro Vancouver locations may look worse than it is.
Bankruptcy filings from the co-working space provider revealed this week it was looking to get out of three local leases: two in Vancouver and one in Burnaby.
This accounts for 220,000 square feet of office space – less than half a per cent of the office space market in Metro Vancouver, according to Colin Scarlett, vice-chairman of Colliers Canada’s Vancouver brokerage.
He said this space is already attracting new potential tenants in industries such as education, technology and professional services.
“It doesn't really move the needle dramatically, if at all,” said Scarlett. “They haven't dropped some of the other locations and if they do, then that maybe moves the needle a little bit more.”
WeWork had commitments to over 700,000 square feet of office space in the region at its peak, he said.
A former Wall Street darling with a valuation of almost US$50 billion, WeWork made headlines this week after filing for Chapter 11 bankruptcy in the U.S.
The co-working company said Monday it has entered into a restructuring support agreement with the majority of its stakeholders. The goal is to reduce the company’s debt in addition to evaluating their commercial real estate portfolio.
“They grew too big, too quickly, but they still have some phenomenal locations,” Scarlett said, adding that the fundamentals of the co-working business are still strong.
“It provides an opportunity for a business to have a ton of flexibility in their lease term and no capital cost that would go into it. There's actually higher demand today than there ever has been and the demand for co-working space in Vancouver is disproportionately high compared to other global cities.”
WeWork has retained locations in Vancouver adjacent to the Canada Line’s Marine Gateway station and on Main Street in the city’s Mount Pleasant neighbourhood, among other local office locations.
The choice to let go of co-working spaces at 1045 Howe St. and 1090 Pender St. West in Vancouver was likely due to these locations not being built out, according to Scarlett.
In almost all commercial leases, landlords provide an “improvement allowance” to ensure the leased space is ready for use. But this allowance is usually not enough for the tenants to achieve the results they are looking for, he said.
“WeWork would have had to find capital to build that space out. In a time when capital is scarce, the easiest thing to do is to identify those locations that would have required a ton of capital and drop those first,” he said.
Demand will remain for co-working spaces in Metro Vancouver, Scarlett said.
Co-working space provider IWG plc. plans to open two more B.C. locations in February 2024 in Burnaby and Surrey.
The new Burnaby location, under the Regus brand, will occupy a 13,215-square-foot space at 7300 Edmonds St. The second location at the Surrey Professional Centre will span 18,500 square feet under the Spaces brand.
“The business model just makes too much sense for it not to work,” Scarlett said.
“If you have a tech company that you're starting out, the choice is to go do a deal with a landlord directly, where you have to spend a whole bunch of money building the space, you've got to buy desks, put carpet down, build walls and you have to sign a five-year lease. Or you can go to IWG or Spaces and take it for six months and the furniture is already in there.”
–With files from the Canadian Press