WeWork competes to lease New York’s Flatiron

WeWork and the Blackstone-backed Office Group are vying to lease New York’s Flatiron Building, which could become the biggest landmark so far to be occupied by the flexible office sector.

The two serviced office providers are among those holding discussions with the landlords, Sorgente Group, about leasing the entire building when the current tenants leave next year, according to three people familiar with the talks.

The process is at an early stage and there is no guarantee of a deal with either group, the people said.

But the potential to secure the iconic building has attracted high-level attention from potential tenants, including Blackstone, which bought a majority stake in The Office Group last year. Jon Gray, president of the private equity group and its former real estate chief, has taken a keen interest in the building, one person said.

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Shared workspaces

The talks are a mark of the ambition of flexible office groups, which have grown rapidly in recent years as unfashionable “serviced offices” gave way to popular shared workspaces with fashionable decor, communal areas and drinks on tap.

Broking firm Newmark Knight Frank is seeking new tenants for the 180,000 sq ft, 22-storey Flatiron Building to replace Macmillan Publishing, which is set to move out to Lower Manhattan next year.

The building, completed in 1902 with a distinctive triangular shape, is one of Manhattan’s best-known landmarks and has lent its name to the surrounding Flatiron District. But its wedge layout also gives rise to challenges for tenants, including an unusually small footprint, said one person briefed on the site.

Class A offices in the area carry asking rents of $77 per sq ft per year, according to a report by Cushman & Wakefield.

Much of the growth in the flexible office sector has been propelled by WeWork, a fast-expanding private company valued at $20bn with investment from Japan’s SoftBank, Goldman Sachs and others.

WeWork growth

WeWork is set to move into other high-profile buildings including the former Lord & Taylor flagship store on New York's Fifth Avenue, which it bought last year in partnership with Rhône Capital. It is also due to be the anchor tenant in the revamped former Central Bank building on Dame St, in Dublin city centre.

But WeWork’s rise has prompted rivals to flex their muscles. The London-based Office Group, which focuses on upmarket private offices with flexible leases, has taken on 12 new buildings since Blackstone acquired the company. It is now eyeing overseas expansion.

Meanwhile, IWG, the world's largest serviced office group formerly known as Regus, has rolled out the upmarket Spaces brand, which now has 78 locations. IWG looks set to be taken private by a private equity firm, with Starwood Capital, TDR and Terra Firma all bidding for the company.

Co-working and serviced office brands are attracting departments of large corporates such as IBM and KPMG as well as smaller companies. They now occupy 7.7m sq ft of Manhattan office space, or 1.7 per cent of the total office stock, according to the data provider Yardi Matrix. In London, WeWork alone has 2.6m sq ft of space, according to a separate report in January by Cushman & Wakefield.

Blackstone, the Office Group, WeWork, Sorgente Group and Newmark Knight Frank declined to comment. – Copyright The Financial Times Limited 2018