WeWork signs a deal for 11 floors in State Street’s longtime home
WeWork just keeps getting bigger in Boston.
The co-working giant on Monday confirmed its largest — and highest-profile — expansion yet in Boston, a deal to take over 11 stories at the top of State Street Corp.’s longtime home on Lincoln Street.
The roughly quarter-million-square-foot lease will give WeWork room for 4,000 desks, which it rents by the month to solo workers, startups, and small businesses — and increasingly to larger companies that want a simpler, more flexible, alternative to the traditional 10-year office lease.
Since arriving in Boston in 2014, WeWork has fast become a major player in the downtown office market. With the One Lincoln agreement and another just-signed deal at 711 Atlantic Ave., near South Station, the company will have 11 locations in Boston and Cambridge, renting desks and space by the month.
“One Lincoln Street is a huge win for WeWork Boston,” said Dave McLaughlin, the company’s general manager for the Northeast. “Together with our other locations downtown, we’re really building a WeWork campus in the heart of Boston.”
The company has begun marketing the new office on Atlantic Avenue and aims to open its first phase of One Lincoln — where it will fill floors 24 through 34 of the 36-story building — later this year. When it’s fully up and running in 2020, the company will have 16,000 desks in 1.1 million square feet of office space in Boston and Cambridge, more than all but a handful of companies doing business in the area.
“They’ve gone from zero space in 2014 to 1.1 million square feet,” said Aaron Jodka, director of research at the Boston office of the real estate firm Colliers International. “That’s an unprecedented trajectory.”
Still, there are questions about how sustainable that growth will be.
Fueled by more than $10 billion from Japan’s SoftBank, WeWork is gobbling up space in major cities — more than 425 locations worldwide, it reports.
While its revenue and customer base are growing fast, WeWork reportedly lost $1.2 billion in the first nine months of 2018, and the young company has never weathered a recession.
Falling rents could easily dent its fortunes, said Shaun Simons, a Colliers broker in London, where co-working makes up roughly twice as much of the office market as it does in Boston.
“Co-working buys at wholesale and rents at retail,” Simons said at a recent real estate conference here. “It doesn’t take much for that to go underwater.”
But, for now, WeWork and other co-working companies are taking the place of more traditional tenants like State Street. The financial services giant took all 1 million square feet of One Lincoln when the building opened in 2003. But lately, it has been subleasing space it no longer needs. Last month, it announced plans to leave One Lincoln when its lease expires in 2023 and move to a half-million square feet in a yet-to-be-built tower atop the Government Center Garage.
State Street, which also leases about 500,000 square feet at Channel Center in Fort Point, is one of a number of old-line, blue-chip companies scaling back office space downtown, even as big-name tech-driven firms step up.
“It shows where the growth in our economy has come from,” Jodka said. “Ten or 15 years ago it was a big bank or investment company in that type of space.”
For building owners, co-working’s rapid expansion is akin to a double-edged sword. WeWork and its smaller competitors, after all, are both tenants and competing landlords.
Typically, a co-working operator will lease space in a building for 10 or 15 years, then rent it out short-term to companies that are willing to pay a a premium for flexibility. Increasingly, co-working firms go after established companies that might have rented a floor or two directly from landlords.
In Boston, for instance, Liberty Mutual, Amazon, and General Electric all have offices in WeWork spaces, while the food-service startup ezCater will soon take over an entire 100,000-square-foot WeWork building downtown, at 40 Water St.
“The relationship with WeWork is complicated for everyone in this room,” Steve Purpura, managing director at the real estate firm CBRE, said at a recent conference in Boston. “Is WeWork a friend or an enemy? It’s tough to know.”
For Fortis Property Group, which owns One Lincoln, the relationship with WeWork certainly appears to be cordial. As State Street moves out over the next few years, Fortis will need to refill the huge building, most likely with a number of companies. Signing a deal for a quarter of it in one fell swoop is a good start, said CEO Jonathan Landau.
“As we commence repositioning One Lincoln as a multi-tenant office tower, we are excited to kickstart the effort with a quarter-million square-foot lease to WeWork,” he said in a statement. “We are confident that WeWork’s tenancy at One Lincoln will enhance the building’s overall appeal in this new age of office leasing.”