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.

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