Shared workplace company WeWork has been renegotiating its leases — and even rejecting some — in an effort to reorganize itself through bankruptcy.
Most office building owners in the current high-vacancy environment want to keep all the leases they have, but Atlanta-based Cousins Properties said last week they’re OK if WeWork walks from a tower it owns along the most popular stretch of the Beltline. After all, Cousins said it has several prospective tenants waiting in the wings.
Executives at Cousins, the largest office owner in Atlanta, said during a recent earnings call that they’ve stopped negotiations with WeWork over its lease at 725 Ponce, located near Ponce City Market. Cousins Executive Vice President Richard Hickson said the tower is currently 100% leased, and they’re confident WeWork’s space won’t be empty for long if the co-working pioneer leaves.
“Due to strong demand from multiple traditional office users, we have decided not to negotiate with WeWork at this location and expect this lease to be rejected,” Hickson said during the Feb. 8 call.
At the end of December, nearly a third of all office space in the Atlanta area was either vacant or available for sublease, a record high, according to real estate services firm CBRE.
Credit: Courtesy Cousins Properties
Credit: Courtesy Cousins Properties
But Cousins’ confidence in high-end offices is bolstered by increasing demand for the city’s most expensive and desirable towers. Cousins CEO Colin Connolly said the cream of the office crop, often called Class A, is recovering well from the COVID-19 pandemic’s disruptions on traditional workplace culture, which he expects will only continue to gain momentum.
“Demand for our space is increasing despite higher professional layoffs,” he said.
WeWork, the company that pioneered shared workplaces while gaining notoriety for its volatile business, filed for Chapter 11 in November and has since rejected dozens of leases across the country, including multiple in metro Atlanta. A company spokesperson told The Atlanta Journal-Constitution that no further decisions have been made about 725 Ponce or its four other active Atlanta area locations.
“Atlanta remains a priority market for WeWork,” the company said in a statement. “We are continuing to have productive conversations with our landlord partners in the market with the goal of becoming a stronger business.”
WeWork has been battered by billions of dollars in losses after it bungled its 2019 initial public offering and struggled to adapt to the COVID-19 pandemic’s impacts on the wider office market. WeWork shares, which peaked at $13.02 in October 2021, dropped to mere pennies before trading of its stock was halted ahead of filing for Chapter 11, which allows companies to reorganize their operations and debt and remain in business.
Through the bankruptcy process, WeWork is attempting to offload leases it deems too costly. Any rejected leased offices will be thrust back onto the office market, which is already teeming with unwanted space.
Connolly said a lot of the pain in the office market is due to unwanted older towers and those isolated in suburbia.
“There is little to no customer or capital demand for old and tall (central business district) towers or suburban commodity properties,” he said. “Many of these buildings will stagnate until they are repurposed or torn down.”
In addition to 725 Ponce, Cousins manages leases for three other WeWork locations across Atlanta and Charlotte. Hickson said they’re in negotiations with WeWork to retain those other locations, albeit at a reduced size.
“I would note our negotiations with WeWork are ongoing and have been very fluid today,” he said.
Cousins reported net income of $18.8 million during the fourth quarter, a 22% decrease from the same quarter in 2022.
The company leased 453,000 square feet of office space across its footprint during the fourth quarter, bringing last year’s total to roughly 1.7 million square feet. Tenants are paying an average of $46.95 per square foot, a 25% increase from 2019. Connolly said he expects leasing momentum to continue, especially in Atlanta.
“I think where we’ve seen the strongest leasing activity to date has certainly been here in Atlanta, which benefits from a very diversified customer base,” he said.
