August 18, 2025 · By Mariusz Kurylo · Commercial Real Estate Collapse

After WeWork: The Coworking Sector Is Collapsing and Taking Commercial Landlords With It

Published: August 18, 2025 | By Mariusz Kurylo

When WeWork filed for bankruptcy in November 2023, it was portrayed in much of the financial media as the end of a specific story — the collapse of a massively overvalued startup that had mistaken a real estate company for a tech company. But WeWork's bankruptcy was not the end of the coworking story. It was the beginning of a broader reckoning for an industry that had staked out an enormous piece of the commercial office market and was now retreating in ways that were causing cascading damage to landlords across the country. By mid-2025, the coworking sector's contraction had become one of the most significant headwinds in commercial real estate, a story that stretched from Manhattan's Midtown to San Francisco's SoMa to suburban Chicago.

WeWork's post-bankruptcy reorganization, overseen by new management with a mandate to right-size the company's global footprint, resulted in the rejection of hundreds of office leases during the Chapter 11 process — leases that had committed the company to paying rent on millions of square feet of prime office space for years or decades. According to Wall Street Journal analysis of WeWork's court filings, the company rejected over 150 leases in the United States alone, returning the space to landlords who suddenly found themselves with large blocks of premium office space — often freshly renovated by WeWork — sitting vacant in markets already struggling with double-digit vacancy rates.

The immediate financial impact on WeWork's landlords was severe. Bloomberg reported that the largest single-landlord exposure was Brookfield Property Partners, which had leased substantial space to WeWork in multiple markets. SL Green Realty, RXR Realty, and Vornado Realty Trust all disclosed significant WeWork exposure in their investor communications. For companies already under pressure from elevated vacancies and higher borrowing costs, absorbing large blocks of WeWork-surrendered space was a genuine financial challenge.

The Coworking Sector's Larger Collapse

Beyond WeWork, the broader flexible workspace industry was contracting at a pace that alarmed commercial real estate observers. IWG (International Workplace Group), the parent company of Regus and Spaces — the world's largest coworking operator by location count — reported in its 2024 annual results that it had closed hundreds of locations globally, including more than 80 in the United States, according to Reuters coverage of the company's filings. IWG's stock price declined more than 60% from its 2021 peak, reflecting the market's reassessment of flexible workspace economics.

Industrious, once considered the premium end of the coworking market with a more sustainable revenue-sharing model than WeWork's fixed-lease structure, had significantly pulled back its expansion plans. Financial Times reported that Industrious, which had raised substantial venture capital on the strength of its corporate client base, was renegotiating agreements with landlord partners and closing locations that had not achieved profitability targets. CBRE, which had acquired a significant stake in Industrious, was monitoring the investment closely.

CoStar Group data cited by Bloomberg showed that flexible workspace operators accounted for approximately 8–10% of occupied office space in major U.S. markets at the peak in 2019–2020. By mid-2025, that figure had declined to approximately 5–6%, with the difference representing space either returned to landlords or allowed to go dark. In absolute terms, this meant roughly 50–70 million square feet of office space had been vacated by flexible workspace operators — the equivalent of emptying every office building in a mid-sized city.

The Subleasing Cascade

Beyond direct lease rejections and closures, the coworking contraction created a secondary problem for the office market: the subleasing cascade. When companies reduce their direct office footprint, they often first attempt to sublease excess space rather than break their lease — creating sublease supply on top of direct vacancy. Coworking operators had done exactly this at scale.

Wall Street Journal analysis of CoStar data showed that sublease availability as a share of total office vacancy had risen to approximately 22% in major markets by mid-2025, up from around 15% in 2019. This "shadow supply" of sublet space — typically available at a discount to direct asking rents, because the sub-lessor is motivated to offset their own costs — creates downward pressure on office market rent levels throughout a building and a submarket. Even Class A buildings in strong locations find their asking rents pulled lower when cheaper sublease alternatives are available nearby.

Financial Times reported that subleasing pressure was particularly acute in San Francisco's SoMa neighborhood and in Midtown Manhattan's Penn Plaza area, two markets that had been heavily penetrated by coworking operators during the growth era. In some submarkets, sublease availability exceeded 30% of total vacant space, a level at which traditional market clearing mechanisms — rent reductions attracting new tenants — were overwhelmed by supply.

What Coworking Failure Means for Office Tower Economics

For office tower owners, the coworking sector's retreat created a specific problem beyond simple vacancy: it disrupted the business model that many had been counting on to absorb difficult-to-lease space. Following the pandemic, as tenant demand shifted toward shorter lease terms and more flexibility, many landlords had either partnered with or converted portions of their buildings into managed flexible space operations — betting that the coworking model would evolve into the dominant form of office occupancy.

That bet was now looking expensive. Bloomberg reported that building owners who had invested $50–150 per square foot renovating space to coworking specifications — high-end common areas, phone booths, communal kitchens — were often unable to recover those costs when coworking operators failed to renew or actively surrendered leases. The renovations were designed for a specific use that the market no longer supported, and re-converting to traditional tenants required further capital.

Reuters noted that the conversion economics were particularly painful for owners of 1970s–1990s vintage office towers — Class B and Class C buildings in suburban and secondary markets — that had turned to coworking as a tenant of last resort. With coworking gone, these buildings faced the stark choice between demolition, conversion to an alternative use (residential, medical, storage), or continued vacancy with diminishing prospects.

Lessons for the Commercial Real Estate Market

The WeWork story and the broader coworking contraction offered several lessons that were relevant to the commercial real estate market's ongoing distress. First, the coworking boom was a warning sign that should have been better heeded: an industry that was signing enormous long-term leases without matching long-term contractual commitments from its customers was a systemic risk to landlords who relied on those leases as collateral for their own financing. The Wall Street Journal's real estate desk noted that sophisticated institutional landlords had largely avoided large WeWork exposures, but smaller private landlords seeking tenants in difficult markets had often not.

Second, the coworking collapse revealed the fragility of "creative solutions" to office vacancy that don't address the underlying demand problem. Converting space to coworking, subleasing to smaller tenants, or filling gaps with short-term pop-up users can manage vacancy metrics but cannot generate sustainable cash flows sufficient to service the debt load on buildings that were valued based on pre-pandemic occupancy and rent assumptions.

CNBC quoted one commercial real estate broker as saying: "We spent five years believing that coworking would save the office market. What we've learned is that it was a bridge to nowhere — it bought time but solved nothing structurally." For landlords, lenders, and investors in commercial real estate, that honest assessment captures the true legacy of the coworking era.

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Sources: Bloomberg, Reuters, The Wall Street Journal, Financial Times, CNBC, CoStar

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, legal, or investment advice.