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The European Medicines Agency could be on the hook for almost €450 million for its former London office — thanks to a combination of Brexit, the pandemic and a slumping commercial real estate sector.
Documents obtained by POLITICO show that the EU’s drugs regulator has agreed to a three-month rent waiver to WeWork, the troubled hot-desking company that is sub-letting the EMA’s former headquarters in London’s glitzy Canary Wharf district, which it had to vacate due to Brexit.
That, in turn, means that the EMA must now pay the property owner the missing bill — and has asked Europe for almost €4 million for this quarter.
In 2014, the EMA began a 25-year £500 million lease for the property, without a break clause to make it cheaper. One internal document shows that the remaining value of the rent, which runs until June 2039, is £373 million, equal to €433 million.
The EMA and WeWork are still in talks. But should WeWork continue to fail to pay its rent and should the regulator have to cover rent and bills, that would equate to about €30 million annually, according to a second document, in which the regulator provides written answers to questions put to it by lawmakers in the European Parliament’s budget committee.
It gets worse: A slow-down in the commercial real-estate sector linked to the post-pandemic move to working from home means that, if the EMA kicks out its tenant, there will be no guarantee it will find a replacement any time soon.
“There is a surplus of office spaces in Canary Wharf, with a vacancy rate reaching as high as 15.6 [percent],” reads the EMA’s reply to MEPs. “It is unlikely that a single tenant would accept to occupy the entire building. The most likely option would be that different tenants are likely to take up some of the floors at different points in time.”
Brexit blues
The reason for the drugs regulator’s unwilling and unsuccessful foray into London real estate speculation dates back to Brexit.
The EMA’s headquarters were originally in London, but it was forced to de-camp to Amsterdam after Britain voted to leave the EU. That meant it had to find a renter for its former 30 Churchill Place office.
That sub-letter, WeWork, was once a darling of investors. Led by its eccentric founder, Adam Neumann, it pitched itself as a cross between a real estate and a tech company, and attracted more than $14 billion in investment from Japan’s SoftBank. But Covid-19, and the widespread adoption of remote work, caused the value of the business to plunge, and in November the company officially applied for bankruptcy in the U.S.
Should WeWork continue to not be able to pay rent, the EMA notes that it will be forced to take it to court. But, as the EMA’s internal document notes, its “external legal advisors have confirmed that enforcing the guarantee formerly granted in favour of EMA by WeWork in the U.S. would be very challenging, if not impossible, given the current financial standing of WeWork.”
All in all, the prognosis is gloomy. The regulator’s internal evaluation suggests that “it is unrealistic to expect that a solution will be found whereby WeWork U.K. or any other tenant(s) will continue paying the full amount for the premises.”
That means the EMA is going to need to find some more money to fill that financial hole — and that means drawing more cash from the EU budget.
To date, it has drawn on its 2024 budget to make up the missing rent, using funds originally earmarked for its regulatory activities. But it wants the Commission to cover the unexpected costs. On Thursday, the European Parliament’s budget committee will meet with the regulator to discuss possible solutions, in private.
One of the EU lawmakers responsible, Belgian liberal Olivier Chastel, notes that there has not yet been any immediate impact on the EU budget. “Before any decision can be taken, we must await the outcome of negotiations with the subtenant, that are confidential,” he told POLITICO.
The EMA, in turn, said it is “in close contact with the EU Institutions to address the situation.”
This isn’t the medicines watchdog’s only real estate bother. To the regulator’s dismay, in December Amsterdam authorities confirmed plans to clear out the city’s infamous Red Light district to build an “erotic center” near the EMA’s new headquarters.
