Chicago’s troubled office market got more bad news when co-working giant WeWork announced Tuesday that “substantial doubt exists about the Company’s ability to continue as a going concern.”
The New York City-based company is losing hundreds of millions each quarter, and is low on cash, according to its quarterly earnings report. WeWork occupies nine Chicago locations spread across the Loop, River North, Fulton Market and Uptown, and its shutdown would increase the pain felt by property owners already struggling with a vacancy rate driven sky-high by the work-from-home trend.
WeWork interim CEO David Tolley put an optimistic spin on Tuesday’s report during a call with investors Wednesday morning, saying the substantial doubt comment was a “technical accounting determination.”
The company reported a $397 million loss in the second quarter, and a loss of $696 million in the first half of 2023. The first half of 2022 was worse, with the company reporting more than $1.1 billion in losses.
WeWork helped pioneer the concept of co-working, spaces where the self-employed or those working for smaller firms share office space, top-flight amenities and concierge services they otherwise could not afford. The company eventually became downtown Chicago’s largest tenant. Its splashy founder, Adam Neumann, promised to revolutionize the global workplace before his 2019 ouster after a disastrous attempt to take the company public.
Neumann’s exit started a run of bad news for the firm. It soon announced thousands of layoffs, reported more than $3 billion in losses during 2020 and began closing offices in dozens of markets. CEO Sandeep Mathrani stepped down in May.
Downtown Chicago hasn’t been immune to WeWork’s struggles. The company last year shuttered its largest Loop location at 125 S. Clark St., where it occupied more than 100,000 square feet, one of hundreds of offices it closed since 2020.
More than 31% of the central Loop’s office space is now available to lease, up from 25% two years ago, according to commercial real estate firm Colliers International.
WeWork still leases space downtown at 222 S. Riverside Plaza, 1 S. Dearborn St., and 330 N. Wabash Ave., in River North at 448 N. LaSalle St., and in Fulton Market at 220 N. Green St. and 167 N. Green St., among other Chicago locations.
During Wednesday’s call, Tolley said turmoil in the office market should eventually benefit co-working providers as more office users abandon traditional long-term leases and seek out more flexible options.
“Fewer and fewer companies, from mature, large-cap businesses to startups, are willing to enter into long-term leases for geographically fixed spaces when they have relatively poor visibility on how that space may be used or valued by employees,” he said.
But due to high interest rates, a slow return to the office, the availability of so much space for sublease, increased competition from other flexible office providers, and slower growth among startups, the short-term outlook is still cloudy, he added.
And even after the closure of so many WeWork locations, the company is still “oversupplied in a few key markets,” said Tolley.
WeWork did not immediately answer an inquiry about whether Chicago could see additional closures.
WeWork shares fell 8 cents Wednesday to close at 13 cents, down from a 52-week high of $5.94.
