What does WeWork’s US bankruptcy mean for Dublin’s office market?

WeWork’s collapse into US bankruptcy on Tuesday and speculation over its future in recent weeks have added to the already palpable sense of anxiety in Dublin’s office market.

The co-working company, one of the biggest individual tenants in the city, has filed under Chapter 11 of the US bankruptcy code, initiating a process broadly comparable to our own examinership process, allowing it to continue to trade while working out repayment terms with its creditors.

It is also likely to reject in excess of 60 leases in the US, Bloomberg reported on Tuesday and use the Chapter 11 court process to renegotiate others.

Market sources have estimated WeWork’s total footprint in Dublin to be around 37,000sq m (398,264.69 millionsq ft) across four locations.

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Leaving aside Hines’s Central Plaza development (the former Central Bank) on Dame Street where it was scheduled to take up 11,148sq m (120,000sq ft) across seven floors, WeWork occupies 9,920sq m (100,000sq ft) at the Dublin Landings 2 building in the docklands where its landlord is a South Korean fund.

It also occupies 4,700sq m (50,590sq ft) at 5 Harcourt Road, owned by Luxembourg-based real estate investor REInvest Asset Management SA and has a substantial presence in the Charlemont Exchange near the Grand Canal, most of which was originally let to Amazon, which has since moved into new premises on Burlington Road.

WeWork’s landlord at the Dublin 2 development is South Korean-based fund, Vestas Management, which acquired the building from Pat Crean’s Marlet group in 2019 for €145 million.

[ WeWork, anchor tenant for old Central Bank building, files for bankruptcy protection in US ]

Finally, the US company is also present at the McGarrell Reilly-developed Iveagh Court on Harcourt Road in Dublin 2.

Dublin’s total available office stock at the moment is around 4.3 millionsq m, around 537,500sq m of which, or 12.5 per cent, is vacant, according to John McCartney, director and head of research BNP Paribas Real Estate.

In a worst-case-scenario in which a hypothetical tenant of WeWork’s size filed for bankruptcy and intended to vacate their leases, the addition of 37,000sq m of vacant space to the market would make a “material difference”, Mr McCartney said. This is particularly the case with vacancy rates rising and the market entering correction mode in recent months.

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However, WeWork is not a normal occupier. “Although it is the lease holder, the space is physically occupied by other businesses that need business space, by definition,” Mr McCartney said.

“If the worst came to worst and WeWork was to pull out, the space is still occupied by somebody and the most likely course of events, I think, is that those occupiers would either stay in situ and just have a different landlord.”

This was the case when WeWork handed backspace it was occupying at the George’s Quay House (1GQ) to the building’s new owner, Corum Eurion. The French real estate investment fund acquired 1GQ, the former headquarters of Ulster Bank currently majority occupied by the Office of Public Works, for more than €80 million in September.

[ WeWork still on course to rent ex-Central Bank HQ despite lease renegotiation plan ]

After WeWork handed back the space, the fund then worked out a new arrangement with the occupier, who had been leasing the space from WeWork.

This is the most likely template if WeWork does decide to vacate any of its leases in the capital, although any such decision would likely be the subject of legal wrangling.

In a statement, a spokeswoman for the company reiterated that WeWork’s locations outside the US and Canada “are not part of this process”.

However, this does not appear to mean WeWork’s Dublin leases will be exempt from renegotiation as part of wider cost trimming. In September, the company’s chief executive David Tolley announced the start of a process to renegotiate “nearly all” of WeWork’s leases globally.

The spokeswoman said the company continues to work with its landlords “on solutions that set all parties up for sustainable success”, but Ireland and the UK remain key markets for the business.