Office REITs: WeWork's Reckoning
Despite a record 106 consecutive months of job growth, office REITs have been perennial underperformers in the post-recession period as the sector has struggled with weak pricing power.
Persistently elevated vacancy rates and elevated supply growth have given tenants the upper hand at the negotiating table, extracting significant concessions from landlords and eating into already tight margins.
The rapid growth of co-working – highlighted by industry heavyweight WeWork – has been one of the more significant demand drivers over the past half-decade.
WeWork’s upcoming IPO could be a moment of reckoning for the highly-valued but fast-growing co-working sector, whose growth has been fueled by a seemingly limitless pool of venture capital funding.
While office REITs themselves have minimal direct exposure to co-working firms, a slowdown in co-working leasing activity would come at a bad time as supply growth remains at cycle-highs.