WeWork Files for Bankruptcy - Impact on Phoenix's Office and Industrial Real Estate

WeWork Block 23 Downtown Phoenix, AZ

WeWork, the once high-flying office-sharing startup, has officially filed for Chapter 11 bankruptcy, revealing some staggering figures - unpaid leases totaling around $100 million. At its peak in 2019, WeWork was valued at a jaw-dropping $47 billion. However, the company's valuation has since plummeted to a mere $45 million, with its stock falling over 98% since the beginning of the year. This dramatic fall from grace has left many wondering about the future of flexible office spaces and its implications, and in this case, how it affects the Phoenix Arizona market.

WeWork's business model, in a nutshell, is acting as a middleman for office spaces. They create value by leasing bland office spaces in bulk, then beautifully furnish office locations and rent them out to companies and freelancers at a premium. The appeal of WeWork spaces lies in their eccentric designs and added amenities like free drinks, hammocks, and rock-climbing walls. However, their rapid expansion and aggressive leasing approach ultimately led to their downfall.

Now, let's shift our focus to the Phoenix, Arizona market, where WeWork has made its presence known with three locations:

2425 East Camelback Road, Suite 150, Phoenix, AZ 85016

Block 23: 101 East Washington Street, Floor 8, Phoenix, AZ 85004

The Watermark: 410 North Scottsdale Road, Suite 1000, Tempe, AZ 85281

Phoenix has been experiencing significant growth in recent years, becoming a hotspot for people relocating from major cities such as San Francisco, Los Angeles, Chicago, and New York. Many startups and businesses from these metropolises have also found their way to the Valley of the Sun, and carried their habit of leasing WeWork spaces with them.

But how will WeWork's bankruptcy affect the Phoenix market? It's essential to note that Phoenix has fewer WeWork locations compared to other major cities. Moreover, the office market has been on shaky ground since the onset of the COVID-19 pandemic, as remote work became the new norm. Many businesses downsized or entirely exited the traditional office market, opting for remote work arrangements.

Impact of WeWork's Bankruptcy on the Phoenix Office Market

Interestingly, this shift in the office space landscape had an unexpected impact on the industrial real estate market. As businesses moved to remote work, those that needed space for inventory storage in their business found themselves occupying industrial space. This surge in demand for storage and warehousing space led to significant rent growth and increased demand for industrial real estate in the Phoenix area. Due to the surge in demand for warehousing and distribution spaces, Phoenix at one point had 50 million plus square feet of new industrial projects in the pipeline. Currently, the pipeline sits at roughly 40 million which include projects that are under construction and planned.

Additionally, some WeWork users who own businesses, such as dropshipping or e-commerce, that require both office space and warehousing have found WeWork's flexible office solutions to be particularly advantageous. This hybrid approach allows them to access office amenities while still having the storage and logistics capacity they need to support their business operations.

In conclusion, WeWork's bankruptcy is a significant event in the world of commercial real estate, reflecting a broader shift in how we work and use office spaces. While WeWork's presence in Phoenix is not as extensive as in other major cities, its fall highlights the evolving nature of work and office space usage. It's a reminder that the real estate market is dynamic and responsive to changing circumstances, and the consequences of this change may not always be what we expect. Phoenix, with its unique blend of growth and transformation, is no exception to this shifting landscape.