Phoenix Property Investors is suing WeWork for abandoning a 10 year commitment to its flagship location in Causeway Bay, with the Hong Kong private equity shop said to be demanding payment of about HK$242 million ($30.8 million) on the alleged breach of contract.
After first moving into an eight floor space in Phoenix’s Tower 535 project in 2016, WeWork abandoned its original space in Hong Kong on 1 April last year, with more than five years left on the lease. In an email to Mingtiandi, a WeWork representative acknowledged that legal proceedings were in progress regarding the broken agreement, while declining to comment further on the case.
“The fundamentals of our business and cash flow remain strong, and WeWork is fully committed to ensuring our long-term viability to the benefit of our members and business partners,” said a WeWork spokesperson contacted by Mingtiandi. Sources at Phoenix Property Investors declined to comment on the matter.
Since its 2019 IPO belly-flop, WeWork has shrunk its Hong Kong footprint to seven locations from 13, with the company’s archrivals at IWG having taken over several of those spaces, including two floors of its former Tower 535 location.
A report in Hong Kong’s Mingpao citing court records said that Phoenix is pursuing WeWork for HK$242 million for terminating the 90,000 square foot lease without consent, with the fund manager seeking to recover unpaid rent and interest as well as payment for other charges.
In all WeWork is said to have walked away from over HK$426 million in liabilities under the agreement with Phoenix, including HK$310 million in rent for the remaining lease period, another HK$105 million in unpaid rent and HK$11.05 million in accumulated interest, according to media reports. The $242 million figure is said to represent the total remaining liabilities after deduction of WeWork’s rental deposit.
WeWork reportedly began negotiating with Phoenix for rental relief in mid-2019, before its IPO collapsed in September of that year.
In January of 2021, the operator again attempted to renegotiate its lease agreement with Phoenix, as well as to surrender an undisclosed number of floors in the building, according to a Mingpao News report. After falling to pay rent in February of last year, WeWork in April notified Phoenix that it had unilaterally terminated the lease, according to the local press account.
New Faces for 535
In Causeway Bay, Phoenix has been able to refill the gap left by WeWork’s departure over one year ago, with Amazon and a range of other tenants setting up shop in the twenty-three storey property.
“Out of the (eight floors of the former WeWork space), seven were leased out and the remaining floor has been committed to an existing tenant as part of their expansion plan,” a spokesperson for Phoenix Property Investors told Mingtiandi.
With Amazon taking up the 17th floor and IWG grabbing the 11th and 12th levels, occupancy in Tower 535 is now 89 percent according to Phoenix, with tenant commitments having reached 97 percent of the space.
Also taking over a floor from WeWork is global design firm Benoy, with fintech company RD Wallet and financial services firm Payoneer also filling up some of the former co-working levels.
Flexing on WeWork
While all signs of WeWork have been erased from its former Causeway Bay home, flexible office operators have shown signs of a rebound as office rents have continued to slide in Hong Kong and corporate tenants grow wary of long-term leases.
In March IWG announced that it has leased the entirety of Swire Properties’ 8 Queen’s Road East in Wanchai, and when that location opens in July of this year it will represent the fifth facility operated by the parent firm of Regus and Spaces to open in a location previously secured by WeWork.
Last year, IWG had taken over a 50,000 square foot (4,645 square metre) WeWork space at the Quayside in Kowloon East last year, after moving into a 30,000 square feet location at Hysan Place in Causeway Bay during 2020.
WeWork’s website currently lists seven locations in Hong Kong, including six on Hong Kong Island, and one in Kowloon’s Kwun Tong area. In January the firm announced that it would open a new location at 9 Queen’s Road Central in Hong Kong, with that 13,000 square foot centre then slated to open in early February. That location has yet to appear on the company’s website.
The firm last October successfully went public on the New York Stock Exchange through a SPAC merger which valued the company at $9 billion. Since that time, WeWork’s stock has faced challenges, including seeing its share prices slide by about 29 percent in the last six months.