|Jongno Tower in Seoul / Courtesy of WeWork|
WeWork has become a headache for KB Asset Management as the shared workspace service provider is rumored to be seeking to close its operations in Jongno Tower ― a building the domestic investment firm owns ― amid worsening profitability, according to industry sources, Wednesday.
Since September 2018, WeWork has rented a combined 18,895 square meters of space on eight floors inside the 33-story building in downtown Seoul.
IGIS Asset Management, which was the owner of Jongno Tower when WeWork started renting space there, was able to sell the 133-meter building to KB Asset for 463.7 billion won ($380 million) in June 2019 because the shared workspace service provider had reduced vacancies.
After WeWork failed to go public late last year, concerns have grown over the sharing economy amid the COVID-19 pandemic. Also the U.S. commercial real estate company started carrying out large-scale restructuring worldwide, laying off a massive number of employees and closing down branches.
In Korea, it lost its leading status in the shared offices service market to homegrown competitor, Fastfive.
Against this backdrop, WeWork told KB Asset in late April that it wanted to cancel its rental contract for Jongno Tower, which is effective until 2038.
"It is true that WeWork talked about cancelling the contract," a KB Asset spokesman said. "It was a unilateral in nature, and we did not accept the request."
According to media reports and industry sources, WeWork recently hired Jones Lang LaSalle (JLL) as an adviser to help it pass on the leasehold of its part of the building to another shared workplace service provider, such as Fastfive.
Some sources have speculated KB Asset and WeWork have already discussed the matter.
KB Asset, however, denied the speculation, saying there was no reason for it to discuss transferring the leasehold with WeWork.
"If WeWork wants to cancel the contract before its termination, it is the company's duty to find another tenant," the spokesman said.
A WeWork spokesman said: "We remain committed to our business in Korea and are dedicated to providing space and services to our members in Korea. All of our locations in Korea are fully operational."
Market insiders said KB Asset may face difficulties in finding an alternative tenant to WeWork in the near future, if it pulls its offices out of Jongno Tower.
Launching its business in Korea in 2016, WeWork expanded here rapidly, opening 18 branches in Seoul and two in Busan.
Its branches in Daishin Finance Center in Euljiro and The-K Twin Tower near Gwanghwamun, however, are also rumored to be closing soon.
In Hong Kong, WeWork reduced its premises by two floors in Hysan Place in Causeway Bay and six floors in Sun Life Tower in Harbour City in Tsim Sha Tsui, according to the South China Morning Post.
The withdrawal was its first in the four years since it entered the Hong Kong market.
In October, the company said it would add four new locations there in the fourth quarter.