As Coworking Conquers Markets, Landlords Wonder How Much Is Too Much

WeWork, which has grown from a one-floor lease in SoHo to New York City’s largest private office tenant in the span of nine years, is expected to go public next month, targeting a $3.5B raise.

But amidst the hype of the highly anticipated initial public offering, the commercial real estate community continues to wrestle with how to hedge against the exploding coworking and flexible workspace sector, and how to capitalize on it.

While some say an IPO could quell lingering anxieties, concern about landlords’ growing reliance on coworking providers — particularly this late in the cycle — remain.

“I’m really excited," said Jamie Hodari, the CEO of Industrious, one of the largest coworking providers in the U.S. "WeWork’s IPO and its eventual stability as a public company will be beneficial, and will be a powerful stimulant of landlord comfort with the industry, regardless of how the actual pricing comes out. [Landlords] are trying to understand our industry … Transparency is always helpful in solidifying a maturing industry.”

There is no questioning the voracious growth of the sector. Coworking leases in Manhattan increased by 200% last year, according to CBRE, with firms like Knotel, Convene and Spaces all taking space at a rapid clip.

Many well-established landlords have rushed to sign up WeWork and its counterparts, both with direct leases and revenue-sharing agreements.

But some remain cautious — others downright skeptical. Last year, Empire State Realty Trust CEO Tony Malkin likened the sector to “the Donald Trump of this cycle” — referring specifically to “when he borrowed so much money in the late '80s so that by the early '90s, the bankers got together and said, ‘It's better to put him on an allowance and support his lifestyle than to let him go bust,'” he said.