Co-working giant WeWork will reportedly further reduce the size of its Australian business despite an email from its CEO telling tenants that they should expect “no changes” to its Australian operations following its US parent company filing for bankruptcy.
Announcing it had filed for Chapter 11 bankruptcy in the US on November 6, the company said that it would “further rationalise its commercial lease portfolio” as part of the process, but that the move would not affect operations outside the US and Canada.
In an email to Australian WeWork tenants seen by news.com.au, CEO David Tolley wrote: “WeWork made the proactive decision to commence a strategic reorganisation process to best position the company for future success.”
“Please note, this process is not happening in your country and we expect there to be no changes to WeWork’s operations there.”
The email further stated that: “WeWork is here to stay.”
But The Australian Financial Review reported that WeWork is in talks to reduce its footprint at three of its 15 Australian sites.
The sites reportedly affected are 1 Sussex Street in Sydney’s Barangaroo precinct, 100 Harris Street, also in Sydney and 152 St Georges Terrace in Perth.
In October WeWork closed three of its Australian locations, exiting leases at 66 King Street in Sydney’s CBD, 50 Miller Street in North Sydney and 260 Queen Street in the Brisbane CBD.
Know more? | michelle.bowes@news.com.au
WeWork filed for Chapter 11 bankruptcy after finding itself overextended on expensive leases taken under long-term arrangements of 10 to 15 years, which it then sublets to short-term tenants.
Under Chapter 11 bankruptcy, a business can continue operating while its owner and creditors reorganise its debts to enable the business to become profitable.
In a video to its tenants, seen by news.com.au, CEO David Tolley said he expects the business to exit Chapter 11 “no later than the second quarter of next year”.
Former WeWork employee Laura Dawson, who is now general manager of Urban Collective, a Sydney co-working space owned by real estate developer JX Capital, told news.com.au the troubles WeWork encountered were due to “poor asset management fuelled by a lot of poor timing”.
Ms Dawson said that since the Covid-19 pandemic, businesses are less inclined to want to sign a five-year lease and put up a bank guarantee to secure office space, which is why co-working locations are still attractive.
“Employers are looking for flexibility in their office spaces,” she told news.com.au.
But she said that now some of Australia’s largest office landlords, such as Dexus, Lendlease, GPT and Charter Hall have launched their own co-working offerings, intermediaries such as WeWork are becoming redundant.
She said leasing directly from the building owner on a short-term basis provides better security for tenants.
“Unlike other flailing models where the co-working provider leases its sites, Urban Collective owns its spaces, providing an extra layer of certainty for tenants,” Ms Dawson said.
Know more? | michelle.bowes@news.com.au
