Co-working is not a new phenomenon, but the spotlight is on WeWork given the significant growth it experienced since it was founded in 2010.
By many measures it is now the largest office tenant in major markets like New York, Shanghai and London.
There is an internal study that claims every time WeWork enters a market, there is an economic multiplier of 1.6x to 1.8x.
What we do, is to test a related question by asking ‘does WeWork have an effect on nearby office and apartment properties'?
Our study tests for the effect of WeWork's entry into the market on rent and vacancy trends for neighboring properties using Moody’s Analytics REIS data.
We chose WeWork properties that opened in 2015 and 2016. What we found is that there was no real effect on the apartment market, but there was a pretty profound effect on the office market.
By selecting properties that are really nearby – between 0.1 to 0.3 miles away – we are in effect trying to control for other things that might affect the results.
We want to make sure that any effect is attributable to the entry of WeWork.
The strongest effect we saw was something we call “rent convergence.”
Prior to WeWork’s entry into the market, rent growths were ranging anywhere from -18% to +14%. After WeWork entered the market, these rent growths were closer to 3% to 4%.
As WeWork raised their rents by 3% to 4%, neighboring office buildings also raised rents by comparative rates.
Now, how should we interpret these results?
If you're an office building that offered comparable quality and yet charged rents that were significantly lower than what WeWork was charging
this is your opportunity to catch up and raise rents or grow your rents as long as it conformed to what WeWork was charging.
If you’re an office property that is near a WeWork location, and had significantly higher rent levels, now you’re in a bind because you can’t raise your rents as much as you could without paying attention to what WeWork is doing.
It was never realistic to assume that WeWork would be positive for all market participants. It is more likely to be a disruptive force – benefitting some and negatively impacting others.
What we saw was that rent growth tended to compress once WeWork entered the market. Which was good for some properties, and not so good for others.