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Knotel losing count during US leasing tear

Flexible office space provider Knotel has been on a leasing tear this year, adding nine new locations and more than 80,000 s/f in Manhattan last month alone.

Overall, the company has spread its model to a dozen properties in 2018, accounting for more than 180,000 new square feet in New York, bringing its total footprint here to more than one million s/f since it was founded in 2016.

The company is growing so quickly that Eugene Lee, its head of real estate and business development, said even he has a hard time keeping tabs on the totals.

“We’re growing so fast that the number keeps moving up,” Lee said. “It’s tough to be exact.”

At present, Lee said the company has at least 80 locations between New York, San Francisco, London and Berlin, totaling upwards of 1.4 million s/f. He expects to surpass two million s/f worldwide by year’s end then double or triple that about through 2019.

However, the company has no set targets, no quota for closures and no mandate for square footage. Lee said his team simply goes where the tenants — both current and prospective — tell it to go.

“We’re not pursuing growth for growth sake,” he said. “It’s not meaningful to the business to have space that’s sitting empty. From what I understand, there are other operators in this space that are leasing as much space as they can then having to resort to all types of promotions and discounts just to get people in there. We are growing based on client demands.”

That’s a not so subtle jab at competitors such as WeWork, Convene and IWG—the parent company to Regus and Spaces—all of which signed big-chunk leases of more than 99,000 s/f last quarter. Knotel, meanwhile, has focused on smaller leases this year, between roughly 4,000 and 40,000 s/f.

Unlike other operators in this space, Knotel does not offer co-working in the strict definition of the term. It does not divide up floors in to small work spaces or appeal to freelancers but rather it leases whole floors to more established companies, often ones that are looking to expand in short order.

Lee said the model has worked because it adds value without creating a distraction.

“We’re behind the scenes and we support the companies that work in our spaces by providing the valuable service that is flexibility,” he said. “If you walk into a WeWork, you’ll feel like you’re in a maze of phone booths with neon WeWork signs everywhere. No real business wants to be in that environment; they have their own brand, their own culture, their own identity.

“You don’t another company that happens to be your office provider telling you how to do business.”

Halfway through this year, co-working and flexible office space accounted for 12 million s/f in New York City, according to research from Cushman & Wakefield, twice the next two biggest markets, Los Angeles and Washington, D.C., combined. Knotel accounts for 2 percent of the national flexible office occupancy, while IWG takes up 35 percent and WeWork holds 28 percent.

Through three quarters of 2018, co-working has accounted for 12 percent of the 25 million s/f of new leases in New York, per Avison Young’s analysis. For its part, Knotel has sign full-floor deals at 250 Hudson Street, 156 and 307 Fifth Avenue, 760 Lexington, 5-9 Union Square West, 200 West 41st Street, 90 John Street as well as various other locations in Midtown South.

Last month, WeWork became the largest private office occupier in the city, surpassing JPMorgan Chase thanks to large deals such as a 258,344 s/f lease at 21 Penn Plaza and 76,814 s/f at 85 Broad Street. Convene also picked up 116,000 s/f at 530 Fifth Avenue while Spaces inked a deal for 110,000 s/f at 405 Lexington Avenue.

WeWork is the biggest name in co-working and it is quickly branching out into other real estate disciplines as well, adapting some of Knotel’s strategies to cater to more established companies as well starting spinoffs for co-living and education.

When asked about the importance of emerging from WeWork’s long shadow, Lee said it is not a priority because the companies are so different, in his eyes. Instead of being Lyft to WeWork’s Uber, Lee views Knotel as being more akin to Tesla: in the same ballpark but playing a different game.

“We don’t need to surpass them because we are creating our own category,” he said. “WeWork is synonymous with co-working, selling little boxes to teams of four or six people. We don’t do that business.
“What you’re seeing now is they are trying to copy us,” he said, referring to WeWork’s efforts to appeal beyond startups and freelancers. “Sure, they are a very big name and they have a lot of money but we created this category and we intend to continue to lead it.”

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