l almost two Empire State Buildings.
But would an investor want to own a property entirely occupied by – or even one with a relatively large exposure to – the co-working phenom?
A new study by Cushman Wakefield shows that investors apply a discount when pricing office properties with large WeWork occupancies.
With this new co-working environment, we haven’t yet been through a full office cycle,” said David Bitner, Cushman’s head of capital research for the Americas and co-author of the report. “Particularly on the bank side – which are providing the debt capital – there’s some conservatism on their confidence and underwriting.”
Cushman looked at 17 office buildings across the country that traded between the beginning of 2016 and the start of this year. The study found that properties with high WeWork occupancies traded at capitalization rates that were higher compared to the overall market rate for similar buildings – indicating that investors viewed these properties as risker bets.
“The cap rate actually ended up being higher once you got above 40, 45 [or] 50 percent of the building, in most cases,” said David Smith, Cushman’s head of occupier research.
The report’s results were pretty clear-cut: Of the 17 buildings studied, all eight where WeWork occupied 40 percent or more of the space traded at cap rates higher than the average.
Of those eight properties, six traded at a rate that was roughly 50 to more than 100 basis points higher than the average. The other two were within the normal cap rate range.
When WeWork occupancy dropped below 40 percent, properties generally showed a compressed cap rate, meaning buyers saw them as safer investments. Five out of the nine properties with low WeWork occupancies sold at cap rates that ranged from about 30 to more than 75 basis points below the average. The other four were within the normal range.
There was one building from New York in Cushman’s study: 85 Broad Street in Lower Manhattan, which Ivanhoe Cambridge bought last year for $652 million.
WeWork occupies 25 percent of the 1.1 million-square-foot tower, which traded at a cap rate of 3.9 percent. That was 85 basis points below the average for Downtown Manhattan, showing the highest premium for a WeWork-occupied building in the study.
There are examples in Manhattan where WeWork occupies all or most of a building’s office portion. The company in June signed a 60,000-square-foot le上海夜网论坛