Quest Workspaces
MORE
MORE

WeWork Rivals Pitch to Win Back Market Share Try Not to Gloat

WeWork Rivals Pitch to Win Back Market Share Try Not to Gloat

 

On its way up, WeWork poached customers with free rent and rich broker commissions, trampling on less wealthy and aggressive competitors to gain a seemingly dominant position. Now the tables are turning, and rivals are struggling to contain their glee.

“Happy birthday to me, happy birthday to me,” sang a senior executive of another co-working company who asked not to be identified.

Three large U.S. landlords have reached out to Novel Coworking in the last week to gauge the company’s interest in either buying buildings leased to WeWork or managing their space if it becomes necessary. Novel, which has 34 locations across 26 cities, has taken over co-working spaces from other operators in the past, Chief Executive Officer Bill Bennett said in an interview. Unlike many of its competitors, Novel shuns leases, preferring to own real estate.

“Everyone is having conversations behind closed doors,” Bennett said in a phone interview. “People are trying to find their plan B and plan C.”

It’s a contrast to the days when WeWork employees would visit competitors’ spaces posing as prospective customers, photograph their tenant lists, then contact all of them with offers of incentives to move. Sometimes they’d set up outside rivals’ offices with games and couches and pitch clients as they passed by. Through this summer, WeWork was adding more than a million square feet a month, according to Jones Lang LaSalle Inc., and had become the biggest private-sector tenant in London, New York and Washington.

A WeWork representative declined to comment for this story. At two Manhattan locations, several WeWork members said they hadn’t even heard of the company’s IPO woes. Clients say that their day-to-day feels normal: Offices are still stocked with free coffee and beer, and the company still intersperses the workday with events for members.

Just a month ago, New York-based WeWork was the fastest-growing co-working firm in the world with a highly anticipated IPO expected to unlock cash for growth. Now, its plan to go public has collapsed, co-founder Adam Neumann has stepped down as CEO and it could run out of cash as soon as next spring given its current pace of spending.

The uncertainty is weighing on landlords, investors and tenants with ties to the company. Deals for two large London office buildings leased mostly to WeWork are on the ropes, and the firm has pulled out of an agreement to rent space in a Dublin office block. In New York and London, WeWork’s most concentrated markets, landlords are bracing for any drop in demand.

WeWork, which leases and owns spaces in office buildings and then rents desks and rooms to customers, has raised more than $12 billion since its founding nine years ago and has never turned a profit. The company had been targeting a share sale of about $3.5 billion in September, people familiar with the matter have said. The withdrawal ends a turbulent process that turned one of the most hotly anticipated debuts into a cautionary tale of the public market’s reticence to pay up for an unproven business model.

For rivals, it’s the perfect opportunity to grab market share.

“WeWork was a competitor vying for space in Nashville, San Francisco, London and Boston but since filing their S-1, they’re no longer in the mix,” Ryan Simonetti, CEO of New York-based Convene, which specializes in flexible meeting, events and office space. “This has created a tremendous opportunity for us to tell our story and show not just existing landlord partners, but potential ones, how different our model is.”

It’s a theme echoed by Laura Kozelouzek, CEO of Quest Workspaces.

“I see this as a much-needed return to pragmatism for the industry,” she said. “It’s going to be a rough ride for a number of owners and landlords as WeWork pulls back, but there will be some great opportunities as well.”

Flexible Space

IWG, formerly known as Regus, has been through many recessions and is publicly-traded with far less debt behind its growth. New York-based Industrious has pivoted to only using management agreements with landlords instead of outright leases, sharing in the profits. And Knotel only focuses on large enterprise clients.

“There’s no question it’s a good thing for Industrious,” Jamie Hodari, the company’s CEO, said. “WeWork is still going to be a big formidable business, but they’re going to be a big formidable business that behaves more accordingly to the typical confines of how businesses behave, as they’re trying to march toward profitability and trying to sign prudent deals.”

Partnership Model

Simonetti said it’s unlikely to see an extensive industry shake-up anytime soon, but the tenor of conversations is changing with landlords and flexible-space operators. “We’re seeing landlords that are more committed to thinking about a partnership format instead of signing a new lease. The noise is forcing landlords to ask real questions, including ‘How profitable are you at a unit-level?’”

WeWork also has been shifting to more management agreements and deals with enterprise clients. Its new CEOs Sebastian Gunningham and Artie Minson are reassuring clients that the turmoil is just a bump in the road. Plus the firm is still hitting back at some rivals, though perhaps not as aggressively as before.

Eduard Schaepman, CEO of Oaktree Capital-backed Tribes, said some of Tribes’s prospective tenants are being offered steep discounts by WeWork. One company, which he declined to name, citing confidentiality, agreed to a 10,000 euro ($11,000) a month deal in Brussels for about 50 desks, roughly a third of the 30,000 euros Tribes would have charged.

Schaepman turned down WeWork as an investor in 2016 in favor of Oaktree. Tribes, which has 23 locations and is profitable, has hired three sales executives from WeWork since July, he said.

It may be hard to find a competitor to take over a traditional WeWork office, which often has many partitions and tiny rooms aimed at co-working companies. For companies like Knotel that cater to clients with 100 or more employees, the layout is not ideal.

“They’ve spent billions of dollars building out co-working facilities,” Eugene Lee, chief investment officer and global head of real estate at Knotel, said. The “millions miles of glass partition that they used to be proud of, is now just something they have to deal with and you can’t make those partitions disappear.”

See original article here!

WRITTEN BY:

Quest Workspaces is the ideal combination of hospitality, quality and community. From coworking, to private office space, informal chat rooms to formal board rooms, business-building events to happy hours and more.

BEGIN YOUR QUEST

WORK THE WAY YOU WANT