A major WeWork rival is expanding rapidly in London just as WeWork's position as the city's biggest tenant is at risk
- Amol Sarva is CEO of Knotel, a flexible workspace platform founded in 2016 which recently achieved unicorn status thanks to a $400 million fundraise.
- Knotel has announced 140,000 square feet of office space in London, including 82,000 square feet at Great Portland Estates in Moorgate.
- The expansion come as rival WeWork struggles towards an initial public offering and skeptics question the office-sharing business model. WeWork is reportedly also seeing some landlords cool on leasing deals thanks to its IPO troubles.
- Sarva spoke to Business Insider about where he thinks WeWork has gone wrong, and why he thinks Knotel's flexible workspace model is the future.
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Two years ago, Knotel CEO Amol Sarva was bemused.
He had discovered that a little-known WeWork employee, Ari Matityahu, had turned up several times to Knotel offices, effectively snooping on the company while pretending to be a CEO looking for office space. Knotel offers flexible office space and, at the time, was only operational in New York.
Knotel's staff clocked Matityahu and Sarva ended up placing a Wild West-style 'Wanted' sign in one of the firm's offices, emblazoned with Matityahu's face. It was jokey, but the underlying message had an edge: We've spotted you.
What WeWork was doing wasn't illegal, but it must have been galling to have your major, well-funded and often brash competitor sniffing around your operations. It was also at odds with the company's ethical profile.
"Back in the day, I was quite charitable about it - I thought 'It's not a big deal,'" Sarva says now. "It was kind of hilarious, and it was mainly a testament to how large and disorganised WeWork was becoming... Six months later, I hadn't really thought about that little spy mission that they did."
Sarva and WeWork's other rivals may have the last laugh.
In the last three months, Knotel has secured nearly 140,000 sq ft of new space in London, to take its total footprint in London to over 360,000 square feet. This includes a partnership with Great Portland Estates in Moorgate for some 82,000 square feet of space.
Where Knotel was only present in New York two years ago, it now has a presence in 16 major cities on three continents, and recently achieved unicorn status with a $400 million fundraise led by Wafra Partners. Knotel is a privately held firm and doesn't release financials.
Meanwhile WeWork CEO Adam Neumann stepped down and the firm has delayed its IPO thanks to a deluge of negative press about its strange governance setup, Neumann's idiosyncratic behaviour, and questions around its core business model.
Knotel focuses on flexible offices, not sharing, and says this is how they've expanded successfully in London
Knotel remains a smaller operation than WeWork, with 360,000 square feet in London.
WeWork is the city's biggest tenant, with an estimated 2.6 million square feet of office space while Regus, which also provides coworking space, has over 1.4 million square feet.
But WeWork's position in London is reportedly now at risk. Last week, Bloomberg reported that a Saudi Arabia-based VC firm pulled out of a £90 million ($112 million) deal with WeWork. The same piece reported that talks had stalled on the sale of WeWork Waterloo, which WeWork describes as the largest co-working facility in the world.
Sarva views WeWork's troubles as fundamentally symptomatic of its business model. He says building landlords who were initially sceptical are now warming up to Knotel's more flexible model, as WeWork falters.
WeWork is known for being a temporary home to fast-growing startups and freelancers, although it's increasingly targeting bigger companies. Knotel only focuses on flexible spaces for larger clients like Microsoft and Starbucks. The basic idea behind flexible workspace is that employees can come and go as needed, and their employees don't typically need to sign long-term leases, as is often the case with coworking arrangements.
"Probably four or five years ago, there were only a handful of owners who believed flexibility was the trend of the future," Sarva said. "That has changed, and I think the vast majority of owners agree with us that flexibility is the direction; that they need a strategy; that a large share of their property will be that way."
He continued: "Over the last year or two, owners also started questioning coworking as a strategy. We've been working on it for four years, saying it's too expensive; it isn't efficient; it deploys too much too much capital to create too little yield; capital efficiency is poor; and it's not really focused on enterprise. There are things that have been changing over the years, and owners have been noticing."
'If WeWork were selling pizzas, this would still be a terrible scandal'
Sarva is naturally bullish - but it's also possible that a severe shrink in WeWork's business could have negative knock-on effects for the entire flexible real estate market.
He insists, though, that the flexible workspace model trumps coworking. "Our customers are big companies, and they're not really looking for coworking - they're looking for an office. Once they come to learn about us, they're like 'Oh, wow. This is easier. This is better for us.'"
And he is sceptical about the leadership issues that have derailed WeWork's IPO.
"They've had the wrong people," he said. "It seems to just be about their leadership. It's nothing to do with coworking. I mean, if these guys were selling pizzas, this would still be a terrible scandal."
As for Knotel, Sarva is planning to double the number of cities where the company has a presence. The company currently has almost 240 spaces across 16 cities.
"Some of our cities are very young - they're on their first couple of locations, and that'll have to get to 10, and then 50 and then 100, and then we'll carry on from there," he explained. "There'll be another 10 or 15 cities over the next couple of years. There's really only 30 that matter. We're going to keep deploying our model. Our model is so efficient.
"What we work on all day, apart from opening new Knotel [locations] which make money, is continuing to improve that fundamental model, because our scope within cities and across cities is one big advantages against some of the other businesses that say they do what we do."