In pre-pandemic times, shared office space seemed like a great idea—even world-changing in the eyes of Adam Neumann, the founder and former chief executive of WeWork. But the seismic shift to a remote work environment changed office demand as we once knew it. Moody’s Analytics calls the office vacancy rate of 19.2% this quarter “perilously close” to the 19.3% record-high vacancy rate in 1986 and 1991, and that was before most of New York’s offices fell into Chapter 11 with WeWork’s filing.

As of the first quarter of 2023, WeWork leased nearly 7 million square feet of office space in NYC, representing 61.4% of the coworking market, Gabe Marans, vice chairman of property advisory Savills, told Fortune. (WeWork cited Savills’ data in court documents associated with its bankruptcy.) 

And, in a predictable yet worrying sign for New York landlords, WeWork’s first move in bankruptcy was to start shedding unprofitable, “largely non-operational” leases. As part of the company’s plan moving beyond bankruptcy, court documents reveal a list of nearly 70 leases WeWork plans to terminate—35 of which are in New York City alone. As of June, the co-working space provider had 700 locations worldwide, while WeWork listed over $15 billion of assets and over $18 billion of liabilities.

WeWork CEO David Tolley revealed in court documents this is just the tip of the iceberg. In a declaration filed with the court, Tolley said the company’s retained real-estate advisor is actively negotiating with over 400 landlords to amend leases on office buildings. He also revealed that WeWork has already amended more than 590 of its current leases, unloading $12 billion in future rent obligations. 

Why WeWork collapsed into bankruptcy

WeWork blames its downfall on a “historically rapid rise in interest rates” and a slower-than-expected return to office. As a result of the distress in the commercial real estate market, it said, landlords have been more willing to reduce rent and offer flexible leasing terms. Plus, companies globally have made a shift toward hybrid work, in turn downsizing their office space. 

In Tolley’s words, WeWork lacks “the necessary financial flexibility to adjust to the rapidly shifting commercial real estate market,” saying that “unsustainable leases” are behind the company’s existing business model, which must be repriced, in his view. He added that despite “extraordinary efforts,” the company could not overcome legacy real estate coasts and industry headwinds.

“As a result, commercial office space, especially in the large cities where WeWork operates, has become available and accessible at unprecedented prices and in significant volume,” Tolley writes in the bankruptcy declaration. “This amounts to much greater competition in WeWork’s target market.” In other words, tenants have more options than just WeWork, which has had an impact on their vacancy rates. 

WeWork’s vacancy rates are significantly higher than the national average. As of the second quarter of 2023, WeWork had a 28% vacancy and a 72% occupancy rate. It’s no surprise in light of the fallen unicorn’s well-documented struggles, dating back to before its first attempt to go public failed as Wall Street balked at its unorthodox accounting. (WeWork has still never reported a profitable quarter despite being about 13 years old and peaking at a whopping $47 billion valuation.) 

In July 2023, Neumann appeared at Fortune Brainstorm Tech, speaking publicly about his new startup Flow—which sounded a lot like WeWork 2.0, as Fortune’s senior writer, Jessica Mathews, put it. Not to mention, Flow had already raised $350 million from a16z, a venture capital firm founded by Marc Andreessen and Ben Horowitz. From the stage, Neumann said that Flow, a “consumer-facing residential brand,” had two options at the time given his noncompete and nonsolicit agreements were set to expire later this year. Those choices, as he put it, were either to partner or compete with WeWork. 

“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” WeWork CEO David Tolley said in a statement. There is much work to be done: WeWork’s bankruptcy filing lists over 100,000 creditors.

A coming wave of commercial real-estate collapses?

“Technology made the rise and permanence of remote and hybrid work schedules possible,” Ermengarde Jabir, Moody’s Analytics senior economist wrote in a Tuesday report. “Office properties—already facing financing hardships and an evolution in values—now face a potential new wave of unexpected vacancies.”

“If WeWork fails, there may not be room for all of their tenants in other spaces,” Savills’ Marans said. He added that the coworking business model “is not going away,” but WeWork’s bankruptcy is a blow for the third-party model, in which businesses or individuals share common office spaces.

Moody’s Analytics’ commercial real estate industry practice lead, Jeffrey Havsy, told Fortune in a statement that “the bankruptcy of WeWork will certainly have a negative impact on the market and the ability to finance those buildings, but that pain will not be equally distributed.”

It’s a negative event, he added, but it’s not a complete loss—and it shouldn’t be regarded as one for an entire sector, in his view.

“Taking one data point from a single firm that has struggled for a decade and using that to write off the entire sector is a mistake,” Havsy said, adding that the flexible office space may not survive in our current economic environment, but there’s still a need for it. 

WeWork is primarily Class A and A+ office space, Jabir said in a report, and “the sudden availability of quality office space presents a flight-to-quality opportunity for would-be office tenants looking to upgrade their space at more competitive prices.” This could shift the balance even further away from “older, less modernized” Class B/C offices to the “trophy office properties” held by WeWork.

That said, Class B property will still be in demand for some swathes of office tenants,” Jabir added. “For locations where WeWork has stable quality tenants in place (e.g. large international consulting firms), office owners can take some comfort in knowing that such subletters are likely unwilling to vacate that space due to the costs associated with a move.”

But despite the perceived “waterfall” of office space coming back into the market as a result of WeWork’s cuts, stakeholders face different challenges from the fallout, Marans said. 

“Not all of the 6.9 million square feet of WeWork occupies in New York City will come back to the market and some tenants will remain in their current spaces under new management. Some of WeWork’s members may seek more traditional office leases,” he said. “WeWork occupiers should be coordinating their contingency plans immediately to avoid being left standing in this musical chairs scenario.”

[This headline and report have been corrected to clarify that WeWork represents over 60% of New York City’s coworking market.]