WeWork Is About to Collapse, What Does that Mean for NYC Real Estate?

The Weekly Recap

Mortgage rates hit a 20 year high, Wall Street is optimistic about the US economy but the inverted yield curve is drawing some attention, Goldman thinks the Fed’s first rate cut will be Q2 of 2024, construction of new homes jumps in July, the WeWork collapse is imminent and they have over 7 million square feet of commercial space in NYC, mortgage demand is the lowest in 6 months but mortgages for new construction is up 35.5%. Fitch Ratings may downgrade more banks including JPMorgan. NYC is going to try to convert zoning for buildings in the Garment District to add 20,000 more homes.

WeWork Is About to Collapse, What Does that Mean for NYC Real Estate?

To some, its shocking that WeWork has made it even this long but the end seems to be nigh for the SoftBank funded co-working space. One of the biggest real estate issues facing New York City is the record high levels of vacancy across all of Manhattan’s office and commercial space. WeWork declaring bankruptcy can leave a lot of banks and landlords scrambling.

WeWork occupies 43.9 million square feet world wide and about 7 million square feet of commercial real estate space in Manhattan. For scale, that is literally two Empire State Buildings. When a large supply of inventory comes on the market where there is no increase in demand, it pushes prices way down. But that 7 million square feet can be daunting when you view it as two Empire State Building’s, but in reality, its less than 1% of the total amount of available square footage for office space in NYC, which is a far cry from 2018 when the company was NY’s largest tenant.

On Tuesday, WeWork admitted that they have ‘substantial doubt’ about its ability to stay afloat. In any environment where you need to get out of a financial problem, the only way is growth, and that is something that has stopped happening for the company.

A lot will be made (and overblown) of the firm, who’s biggest backer is SoftBank and who’s former t-shirt wearing CEO dropped the ball on a company with a $47 billion IPO valuation for owning nothing, declares for bankruptcy and closes locations. At the end of the day, the overall impact will be nominal although valuations of commercial spaces might suffer mildly.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan.

In the chart below, you can see that in Manhattan, although rates are more than twice as high as they were last year, that MORE transactions happened in July of this year compared to July of last year. Buyers are no longer afraid of high rates.

Mortgage Rate Update

The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb. The last time the 30-year fixed-rate mortgage exceeded seven percent was last November. Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.

News You Can Use

• Mortgage Rates Hit 7.09%, Highest In More than 20 Years Wall Street Journal

• Goldman Pencils in First Fed Rate Cut for Second Quarter of 2024 Bloomberg

• US Housing Market Recoups $3 Trillion Lost in Recent Slowdown Bloomberg

• Why Fed Policymakers Were Torn On the Latest Rate Hike Axios

• Fitch Warns it May Be Forced to Downgrade Dozens of Banks, Including JPMorgan Chase CNBC

• Fed Saw ‘Significant’ Inflation Risk That May Merit More Hikes Bloomberg

• Fed Rate Cuts Could Come As Soon As Next May, Goldman Sachs Says Yahoo Finance

• The Fed is Playing a Waiting Game to Try to Avoid a Recession Bloomberg

• Construction of New Homes Jumps in July as Mortgage Rates Continue to Rise NY Post

• US Retail Sales Top Forecasts, Showcasing Consumer Resilience Bloomberg

• How WeWork Finally Arrived at the Brink Axios

The Deep Insight

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