Mr Cook said that while co-working providers had been the "saviours of the Sydney and Melbourne markets" by keeping the vacancy rates relatively low, such large scale deals were a "huge risk" for landlords. "The idea of WeWork or any other third space provider taking out 10,000 or 20,000 sq m is unproven at the moment, particularly in Australia. It might work in the US or Europe where you’ve got tenants with 100,000 or 200,000 sq m requirements but it’s not necessarily applicable to the Australian market." Others in the industry are concerned that large deals with weak leasing covenants could leave landlords highly exposed. "If they can't fill the space, they can't pay the rent, which is why many of these co-working operators enter into each of these leases on a special purpose vehicle, which is a $2 company. So if one centre isn't doing well, they will allow it to fold and they will walk away from it," Steve Urwin, director of Kernel Property, said. He said the market would face its big test in Sydney in the second half of 2020 and in Melbourne "a bit earlier and a lot harder" because of the glut of co-working space in the market. Mr Urwin said that from a landlord's perspective, it did make some sense to sign up co-worker tenants now and pass on the risk, given the landlord market "was coming right off". "Otherwise they would be staring down the barrel at deals not as good as these," he said. Mr Cook said a corporate tenant could currently provide a bank guarantee backed by a business with a 40 or 50 -ear history, which was far more bankable compared with that of a relatively fledgling co-working operation. "In five years' time if WeWork achieves the growth and profitability it is projecting, everyone will be happy. At the moment the covenant strength is a little bit questionable; however, some owners are prepared to take that risk."
Co-workspace operators have raised their sights and begun to pursue bigger spaces, which could spell trouble for landlords, experts in Australia have warned. The transition from soaking up small vacant locations to leasing large spaces and in some cases entire buildings creates a huge risk for landlords, according to Michael Cook , group executive for property at Investa. Michael Cook ’s comments were echoed by others in the industry including Urwin of WeWork who said weak leasing covenants signed with SPVs could leave landlords highly exposed. Urwin warned that the market in Australia would face a big test in H2 2020 and Urwin a little earlier and a lot harder due to the excess of available co-workspace sites.