... after Christmas next year, less than a quarter of its space will be home to Lord & Taylor's flagship store. Instead, the retailer said on Tuesday, the Midtown Manhattan fixture will become the new global headquarters of WeWork, the seven-year-old office space start-up. Lord & Taylor will rent the bottom floors, redesigning them into a smaller version of its department store.

In selling its flagship building to a WeWork joint venture for $850 million, Lord & Taylor and its parent, the Hudson's Bay Company, are bowing to pressures that have increasingly weighed on the retail industry. It is an acknowledgment that even the grand physical shopping spaces of old can now fetch higher values as offices catering to millennial workers.


Retail sales at Hudson's Bay were down about 1 percent in the first half of the year. As of Monday's close, the retailer had a market capitalization of roughly $1.7 billion, or a tenth of WeWork's private market valuation.


Hudson's Bay has faced enormous pressure to sell its trove of real estate holdings -- including its crown jewel, the Saks Fifth Avenue flagship store farther up Fifth Avenue. That property was appraised recently at about $3.7 billion.

One of Hudson's Bay's shareholders, the real estate investment firm Land and Buildings Investment Management, has pushed for the company to sell the Saks store, suggesting it might be desirable to a hotel developer or as bricks and mortar space for Amazon.


Beyond the Lord & Taylor building sale, Hudson's Bay struck agreements to lease some of its other retail space to WeWork, including in Hudson's Bay stores in Canada.


While WeWork normally leases space in commercial buildings, it set up WeWork Property Advisors to buy some property outright. Among the advantages of such arrangements is that the start-up would be able to enjoy any rise in the value of the real estate where it sets up its co-working spaces.

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