WeWork continues to sign up on large new lease commitments in the City, the latest one in Devonshire Square.
Talking to valuers I know there is some concern over how to value the WeWork covenant. Its leases tend to be traditional, in other words it signs up to institutional leases for fixed terms at an open market rent subject to reviews and enjoys a rent free period at the start.
Yet there is a mismatch with the occupiers, they tend to be start ups with short flexible licences. So there is a question over the reliability of WeWork 's income stream against its substantial fixed rent lease liabilities.
But what if WeWork signs up for Revenue Sharing Leases rather than fixed rent leases? Apparently it has done this on some of its recent leases, meaning broadly it pays less if its occupiers vacate, (potentially nothing?), but pays more if its space is doing well.
So landlords are exposed to the upside but also the downside. They are buying into the WeWork vision.
Revenue Sharing leases are not new, look at turnover rents in the retail sector. But this seems a new departure for the WeWork model. It has interesting implications for the institutional property investor. It replaces the traditional bond like City office institutional lease with something that looks more like an equity. Its an interesting development and one to watch.
How WeWork’s revenue-sharing leases could affect property investors For any property investor, the US group’s business model is something that should be watched closely