WeWork continues to struggle in the world’s most expensive office market as Industry sources confirmed to Mingtiandi late this past week that the shared workspace provider has abandoned it fourth location in the city since late last year.
After having earlier having been reported as giving up centres in Kowloon East, Tsim Sha Tsui and Causeway Bay, WeWork has now vacated its multi-storey centre in Henderson Land’s H Code building in the city’s Central district, Mingtiandi’s sources indicated, after the news was first reported in the Hong Kong Economic Times.
By giving up the 100,000 square foot space on Pottinger Street, WeWork has now surrendered nearly 300,000 square feet of space out of the 1 million that it had taken on in the world’s most expensive leasing market since entering Hong Kong in September 2016.
Giving Up a HK$5.5M Lease
H Code owner Henderson Land Development Company Limited is already marketing WeWork’s former space for lease, a source said. Henderson did not respond to an interview request before the time of publication and WeWork declined comment on its latest retreat.
WeWork had agreed to lease the multi-floor location in Central’s H Code building on Pottinger Street near Lyndhurst Terrace for HK$55 ($7.10) per square foot per month in May of last year, according to local media accounts at the time, making the total rental cost around HK$5.5 million per month.
The troubled co-working pioneer was still offering the location along the steep stone slabs of Pottinger Street on its website on 26 April, with the listing having since disappeared.
Insiders tell Mingtiandi that the workspace provider has moved its H Code members to its location in the nearby LKF Tower in the Lan Kwai Fong entertainment area, where the company had in 2018 opened a 17-storey centre in what had formerly been the LKF Hotel.
Some WeWork members which had leased full floors in H Code, including online food delivery company Deliveroo, have remained in the 300,000 square foot building, presumably leasing directly from Henderson, although WeWork’s amenity-laden common areas have been returned to the developer.
Footprint Trimmed by 30%
From March through August last year, WeWork had signed agreements representing 425,000 square feet of offices, bringing its total footprint in the city to an estimated 1 million square feet, or around 1 percent of the commercial office space in the city, according to a tally by the South China Morning Post.
Since that time, in addition to vacating its H Code centre, the firm has surrendered a 60,000 square foot space in the Hopewell Centre in Wanchai after first being reported as handing back half of that location.
This week’s revelations come after Mingtiandi reported last month that WeWork surrendered its centre in Wharf’s Harbour City complex in Tsim Sha Tsui, which it had failed to open in the fourth quarter of 2019, and handed back its facility in developer CSI’s the Harbourside HQ (formerly the Octa Tower) in Ngau Tau Kok after renovations on both locations had been mostly completed.
The company also was unsuccessful in its attempt to open a third previously announced location at Hysan Place in Causeway Bay, which has since been taken over by competitor IWG. Together, the surrendered space totals approximately 290,000 square feet, according to Mingtiandi calculations.
Of four Hong Kong locations that WeWork had in 2019 announced would be opened in the second half of the year, only a centre at the Link REIT and Nan Fung’s The Quayside in Kwun Tong remains open. That facility had been established as a partnership between WeWork and the developers under the shared office provider’s Powered by We program, which allowed for revenue sharing rather than a traditional lease.
Only nine WeWork locations are now listed in Hong Kong on the company’s website, a more than 30 percent reduction from the 13 sites it had planned to be operating across the city by the end of 2019.
Henderson Hunts for New Tenants
WeWork’s pullbacks came as social distancing measures to stop the spread of COVID-19 emptied co-working spaces in the Asian financial hub, forcing co-working operators in the city to further pare their portfolios.
With the Manhattan-based firm’s floors in H Code on the market, Henderson Land is understood to be asking for HK$50 to HK$60 per square foot per month for the vacant space, with no indications that the Hong Kong-listed giant is shopping for partners to operate the space under a joint venture or profit sharing arrangement.
Jonathan Wright, Colliers International’s director of flexible workspace consulting for Asia, said that the location in one of the city’s hippest office locations remains attractive for flexible office providers, while cautioning that most operators are now favouring cooperation arrangements with asset owners over long-term leases.
“This would be a great asset for some operators, given the building specifications and location,” he said. “However, any deal would hinge on finding commercial terms that align with market realities.”
‘We are seeing robust occupier demand for flexible workspace in the range of 2,000 square feet. to 6,000 square feet as market uncertainty in Hong Kong continues,” he added. “It makes sense for asset owners to partner with operators to accommodate this demand, no operator is signing traditional leases right now so landlords need to adjust their thinking to get to a deal that works.”
WeWork’s continued woes come as the vacancy rate for grade A office space in Central rose to 4.6 percent in April 2020, up from 4.5 percent from the previous months, according to a report released in May by property agency JLL. Citywide, vacancy rates rose from 4.8 percent in April 2019 to 7.2 percent in April 2020, the agency found.
All a bit of a WeScam really. Fortunate that the IPO was canned and the evangelist was seen to be wearing no clothes before another crazy multi billionaire was born with an ego to match.
If you’re a “director of flexible workspace” it’s probably time to update the CV.