When WeWork announced last week its ability to continue operating was in “substantial doubt,” many onlookers were less than surprised. After all, it has been a tumultuous few years for the flexible office space provider, punctuated by a failed IPO, the resignation of chief executive and founder Adam Neumann in 2019, and the departure of CEO Sandeep Mathrani in May. WeWork has lost 98 percent in value since it went public in 2021.

WeWork’s ability to continue hinges on the success of its plan to reduce rent and tenancy costs, increase revenue and negotiate more favorable lease terms. Such actions, not to mention a possible bankruptcy, will mean some fallout for the office sector. In a research note, Barclays finds there is $7.5 billion in CMBS loans with exposure to WeWork as a tenant in the US; of this, 38 percent is concentrated in New York City.

All in all, WeWork’s troubles will put some office landlords in a difficult situation and may adversely impact lender appetite. The situation has exacerbated the negative narrative around the industry. “A failure could have widespread effects,” wrote The New York Times. WeWork “could be the canary in the coal mine for the US commercial real estate sector,” wrote Markets Insider.

But how justified are these concerns?

While a slow return-to-work environment has had a significant impact on the sector, there is a more nuanced story for WeWork’s specific situation.

“We’re not buying the ‘return-to-office’ story as the primary reason for the troubles behind some of WeWork’s offices,” wrote executives at London-based manager Castleforge in a research note. Instead, the firm blames WeWork’s business model of leasing to blue-chip companies to improve perceptions of creditworthiness in the public market as “the root of breakdown.”

Amid current rhetoric around the ‘bifurcation’ of offices by quality, one could point the finger at the buildings WeWork’s tenants have vacated. However, the structure WeWork typically employs – short-term, expensive subleases concentrated around single tenants – puts landlords in a risky position, not to mention the business’s history of shaky financial performance.

The impact of this single-tenant strategy can be seen in the case of 125 Shaftesbury Avenue in London. Savills Investment Management purchased the building for £267 million in partnership with Korean investor Vestas Investment Management in 2018, shortly after WeWork signed a 20-year lease. But the now-vacant property was put up for sale in June, after sole tenant Meta vacated the space and WeWork gave back the keys.

Today, the building has a reported asking price of £175 million ($223 million; €205 million). Kiran Patel, deputy CEO and global CIO at London-based Savills IM, admits WeWork seems “impacted more than most” by the rise in interest rates and wider economic malaise.

Indeed, when we consider the performance of WeWork’s main competitor, the difference is stark. IWG, the largest provider of hybrid workspace globally, which owns brands Regus and Spaces among others, delivered record six-month revenue growth of 14 percent year-on-year, as per its mid-year results, with EBITDA growth of 48 percent. In contrast to WeWork’s continued losses and bleak ultimatum, IWG exited H1 “with improved margins” and a “cautiously optimistic” outlook for the rest of the year.

Landlords of WeWork-occupied buildings have reason to be worried. But for the rest of the office market, demand for high-quality, modernized, flexible and sustainable spaces holds fast. And as for the asset management part of the equation, the fundamental doctrines of risk and reward remain king.