Moody's Analytics REIS

Report: A Pebble Cast Into a Pond

Measuring the effect of WeWork on nearby properties

ANALYSIS BY VICTOR CALANOG, PHD AND KEEGAN KELLY

WeWork’s growing presence in several major cities prompts questions about its effect on neighborhoods. WeWork itself claims a 1.4 to 1.8x increase in economic activity once it enters a market.

In this paper, we examine WeWork’s effect on the performance of nearby commercial properties. While the entry of WeWork does not generate any measurable monotonic trend break in rent and occupancy patterns once we control for other factors, there is evidence that WeWork prompts convergence in rent levels and rent growths. Variation in rent levels is reduced by anywhere from 8.9% to 48.2%, by some measures. Rent growths compress by a factor of four, from initial ranges of +/- 16% to +/- 4%, conforming more closely to what WeWork subject properties impose. It appears that WeWork’s presence has a constraining effect on the ability of landlords to vary rents: in effect, nearby properties had to more closely follow what WeWork set as a ‘neighborhood benchmark.’

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