Layoffs

WeWork's smaller rivals are flashing warning lights 

January 17, 2020 View comment (1)
Flexible leasing startups are scaling back after a decade of breakneck growth.

WeWork rival Knotel on Friday confirmed layoffs following a report in The Real Deal that it was shedding up to a third of its New York employees. The company declined to publicly confirm exact figures but said the number of employees affected was far less than a third of the staff.

Knotel's lease activity dropped roughly 80% in Q4 2019 to just 67,186 square feet during the quarter—its lowest level in two years—according to data from commercial real estate firm CBRE, which tracks about 40 US markets.

The deceleration follows Knotel's $400 million round just six months ago, which valued the company at $1.6 billion, according to a PitchBook estimate. Knotel had reportedly been planning to use the capital to expand into the world's 30 largest cities and invest in its blockchain effort Baya and furniture rental service Geometry. The company is currently in 17 cities.

Knotel's lead investors on prior deals include Wafra, a wholly-owned subsidiary of Kuwait's Public Institution for Social Security, as well as Norwest Venture Partners, Newmark Knight Frank and The Sapir Organization.

WeWork, whose leasing activity plummeted 92.7% from its trailing Q4 average, has led a contraction in activity that spans the nascent market, and co-working startup Industrious dialed back its leasing activity by 6.5%, the CBRE report showed. The overall decline in leasing activity was most drastic in the Manhattan, Chicago, Boston and Los Angeles markets, CBRE said.

Montreal-based startup Breather, which offers hourly and long-term workspace rentals, also reportedly went through layoffs in December as a result of overspending. In the same month, restaurant co-working startup Spacious was shut down just four months after it was acquired by WeWork.

The news is a sign that co-working and flexible office space startups are curbing growth after years of explosive development. Flexible space grew 23% annually from 2010 to 2017, according to real estate services firm JLL.

After WeWork abandoned its ill-fated IPO, the company received a $9.5 billion rescue package in October from SoftBank in order to stave off a cash crisis. A month later, the company laid off 2,400 employees, or nearly a fifth of its workforce, as its bond prices tumbled.

A Knotel spokesperson told PitchBook the pullback was related to a need to better align supply and demand for flexible office space. The startup had 800,000 square feet of vacant or soon-to-be vacant space in New York at the end of last year, Crain's New York reported.

Knotel’s approach to flexible office space is to target small to midsize companies; its clientele includes SeatGeek, Cheddar and Twilio.

Featured image via Carlina Teteris/Moment/Getty Images

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