Coworking space provider WeWork Inc. plans to downsize its business in South Korea, according to banking sources on Sunday. Market watchers say investors that lease offices to the coworking space giant in Korea face a risk of vacancies.
WeWork Korea has sent letters to its landlords requesting adjustments to their lease agreements. The company has selected Alvarez and Marsal Holdings LLC, a financial services firm specializing in turnaround management, to deal with the contract modifications.
The company, once valued at $47 billion, filed for Chapter 11 bankruptcy protection in the US state of New Jersey in November. The Korean affiliate, operating 17 offices in Seoul and two in Busan, will renegotiate with landlords by the end of March, sources added.
WeWork is considering reducing rent space, adjusting rental costs and even terminating lease agreements, according to sources.
The company entered the Korean market in 2016, providing shared workspace in landmark office buildings such as Seoul Square and The K-Twin Towers. Its Korean business expansion started to slow during the COVID-19 pandemic.
Given that WeWork rents at least 30% of all leasable area in each office building, the investors are expected to see their property values plunge. Some buildings may experience a more than 50% drop in valuation, market insiders say.
Some WeWork offices have already impacted Korean investors.
Seoul-based KB Securities Co. and Vestas Investment Management Co. bought an office building at 125 Shaftesbury Avenue in London for £267 million ($340.2) in October 2018, with a 20-year lease contract with WeWork.
The Korean Federation of Community Credit Cooperatives (KFCC), a major institutional investor, and KB Securities injected 180 billion won ($136.2 million) in equity into the London property at the time, sources say.
Last year, WeWork terminated the contract with a penalty of 1.5 times its annual rent. The property's value has since fallen by more than 50%, market watchers say.
WeWork’s move is expected to further freeze the Korean office market, which is facing debt restructuring of Taeyoung Engineering & Construction Co. Investment managers are struggling to secure funds from institutional investors for real estate deals, according to sources.
Write to Byeong-Hwa Ryu at hwahwa@hankyung.com
Jihyun Kim edited this article.
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