- Computing giant IBM is leaving a large location it leases in Manhattan from WeWork.
- The exit is a blow for the flexible-workspace giant, which has been struggling with growing vacancies amid the coronavirus crisis.
- It is also a setback for WeWork, which had held up its close relationship with IBM as an example of how its spaces could appeal to Fortune 500 companies as well as startups and entrepreneurs.
- The departure highlights the risks in the flexible-workspace industry that have been laid bare by the current economic downturn.
- Major tenants have expressed uncertainty about their future office footprint in the wake of the pandemic, which has prompted some to say they will embrace remote working strategies.
- Click here for more BI Prime stories.
IBM has decided to pull the plug on a large location it leases from WeWork in Manhattan, dealing a blow to the flexible-workspace giant’s ambitions to fashion itself not only as a home for entrepreneurs and startups, but also for blue-chip corporate clients.
The computing company said it would leave the roughly 70,000-square-foot space it leases from WeWork at 88 University Place, south of Union Square, “sometime after Labor Day.”
“IBM has notified our landlord of 88 University Place, WeWork, that we will be exiting our agreement on that property,” Doug Shelton, an IBM spokesman, said in a statement provided to Business Insider. “WeWork was a terrific partner and we’re very grateful for the WeWork staff at 88 University, who served us during our tenure at that site.”
IBM had used the space for the past three years to house marketing staff, Shelton said.
A WeWork spokesperson did not immediately respond to requests for comment.
The decision comes as tenants across industries have been forced to reconsider their office footprints in the wake of the Covid-19 crisis.
Some office occupants have said they will adopt remote-working strategies going forward that may substantially reduce their need for office space.
Last week, for instance, Facebook CEO Mark Zuckerberg announced during a public address that the social media giant will allow as many as half of its employees to work remotely over the next decade and suggested it will shift its focus away from major offices in big cities to a more diffuse network of smaller hubs spread across the country.
Other companies, including IBM, have recently announced layoffs that may cull their need for space. The IBM spokesman denied that reductions in headcount at the $110 billion company, nor the Covid-19 crisis, played a role in its decision to leave 88 University Place.
“The resource action last week had nothing to do with real estate,” Shelton said, referring to the layoffs. “It was about making structural changes for IBM’s long-term competitiveness.”
Shelton said that IBM will continue to occupy WeWork spaces it has elsewhere, including in Chicago and London.
The 350,000-person company is based in Armonk, Westchester, about 25 miles north of New York City, and has several office locations in Manhattan. In recent months, it was considering consolidating its footprint in the city into an office spanning as much as 500,000 square feet, a requirement that could be on hold, reduced, or scuttled by the coronavirus ordeal.
“IBM continues to explore real estate options in NYC and Westchester County for our employees,” Shelton said. “The company continually looks at our real estate to ensure it services the needs of IBMers and how we serve our clients.”
IBM’s departure from 88 University Place strips bare the risks the virus crisis and the resulting economic downturn pose for WeWork and other flexible workspace firms.
Workspace firms boasted of the flexibility they provided to tenants as the economy surged in recent years and companies snapped up spaces on the fly to rapidly grow. Those short-term lease commitments now allow occupants such as IBM to also quickly divest spaces, leaving flexible workspace firms with growing vacancies even as they themselves remain on the hook to pay rent to their landlords.
88 University Place had represented one of WeWork’s signature successes, marking a shift from the firm’s focus on coworking spaces that appealed to small businesses and entrepreneurs to larger office offerings suited for Fortune 500 companies in search of flexibility and WeWork’s office technology, amenities, and design.
The location had previously attracted controversy when it was revealed that WeWork’s cofounder and now-ousted chief executive Adam Neumann had purchased the nearly 90,000 square foot office building at 88 University Place with partners before leasing it to WeWork. The arrangement presented a potential conflict of interest issue because Neumann could theoretically have steered WeWork into the location not only because it best suited the flexible-workspace firm’s business, but also to enrich his interest in the property.
In the runup to the WeWork’s failed IPO attempt last year, Neumann subsequently stated he would sell his stakes in the building and other properties where WeWork had a lease to the flexible workspace company to try to calm criticism over the arrangement.
The building, according to reports, had troublesome problems with its elevators, which required IBM employees to spend time waiting in the lobby, or take the stairs in the 11-story property, to get to their workspaces, spurring complaints from the company.
Have a tip? Contact Daniel Geiger at dgeiger@businessinsider.com or via encrypted messaging app Signal at +1 (646) 352-2884, or Twitter DM at @dangeiger79. You can also contact Business Insider securely via SecureDrop.
Leave a Reply
Leave a Reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.
