As WeWork struggles to restructure its business, other leaders in the flex space sector believe there’s still room for their own growth for the increasingly popular concept.
According to the Real Estate Board of New York, co-working space currently accounts for 12-15 percent of the city’s market and recent industry reports have suggested the sector will do well even in an economic downturn.
But slow and steady will win the race, according to the experts who spoke at a “Future of Flex” seminar hosted by Convene yesterday (Tuesday).
“I don’t think anyone here would wish [WeWork] or the people who worked there ill will,” said Ryan Simonetti, co-founder and CEO of Convene. “But what we’ve learned is growth for growth’s sake is not a longterm business model.”
Simonetti was joined at his firm’s midtown co-working space by Knotel chair and co-founder Edward Shenderovich; Dan Zakai, CEO, Mindspace; Andrew Kupiec, CEO of Hana; John Arenas, chair and CEO at Serendipity Labs; Enrico Sanna, CEO and co-founder of Fora; Shlomo Silber, CEO of Bond Collective; and Bridgid Coulter, CEO and founder of Blackbird House of Coworking. Melanie Gladwell, head of flexible workspace solutions for Cushman & Wakefield, was the moderator.
The common theme among the speakers? They never wanted to be the next WeWork, even long before the company’s IPO was pulled. And their investors aren’t pushing them to go that route.
“There’s a myth of dominate,” said Sanna. “You can be a brand and have 50 spots. It’s about having a clear idea of who your customer is. We believed in quality over quantity from day one. It’s about turning a profitable business.”
Simonetti commented how he and his fellow panelists have benefitted from WeWork’s brand awareness, its accomplishments and ultimately its missteps.
“This isn’t a winner take all market,” said Simonetti. “You can grow and create a lot of value for your customers and investors, but you don’t have to do it in a non-disciplined, rapid way.”
Convene, he added, has grown by 1.5 million s/f in 10 years, growing more quickly in the past couple of years. But, said Simonetti, the company backs away from any deal that won’t generate at least a 30 percent return on capital. “We took 93 deals to investors — we looked at 1,000 — and we approved 11,” he said.
Arenas agreed. “You have to have a demand funnel. It’s not just signing leases, which co-working has been a lot of until recently. It’s grown up.”
Kupiec said WeWork’s regrouping has made others in the industry realize the need to do the same.
“They’re taking a pause and this allows conversations to happen with landlords,” he said. What he expects will happen is that there will be less building on spec and more reliance on anchor tenants from the start. “If you have an occupier as you’re opening, that changes things drastically.”
Shenderovich said when he started Knotel, he felt that traditional leases rather than other co-working companies were the competition. “We started to do what WeWork was not doing. People want more flexibility. No one will tell you they want less flexibility,” he said.
Most of the speakers said they’ve had to evolve as co-working itself has grown from mainly being freelancers needing desks to larger companies looking to expand their teams to new areas without the commitment of a regular lease.
“Now it’s more enterprise businesses,” said Zakai. “It’s becoming more of their real estate strategy.”
To create occupier demand, some companies, like Bond, have opted for a highly personalized approach that seeks customer feedback on just about everything.
“We have a town hall every quarter and they can give feedback on everything from what kind of coffee they want to what kinds of events they want,” said Silber. “In Brooklyn they want a composting program.”
He added, “Every company has something small that means something to them. It can mean letting them paint a wall with the colors of their brand and then they become part of the community.”
Both Simonetti and Coulter, whose company caters to women of color, said office design is very important to people. Simonetti said 99 percent of his tenants feel it has an impact on their productivity while 90 percent care about the amenities with food service being the number one demand.
“If you’re a tenant in a Convene-powered building, you can get room service,” said Simonetti. “Hospitality tends to be the big differentiator.”
Arenas said customers care more about consistency of service throughout a network at different locations. On that note, he added that Serendipity has been growing in suburban areas where demands for office space are beginning to mirror those in the city.
“It wasn’t obvious this would be a big thing,” said Arenas. “Millennials have grown up and co-working has grown up. There is corporate demand.”
He added that landlords have found relationships with Serendipity to be of value because of its ability to attract higher profile tenants. Arenas also predicted there would be more licensing and franchising in the co-working world.
Simonetti meanwhile said Convene has more recently found itself in the game of redeveloping former big box stores in urban areas.
“We have a dozen projects around the country in big box stores,” said Simonetti, with Arenas pointing out that there is interest in doing this in the suburbs as well.