(July 24): Start-up Knotel is planning to more than triple its office space in New York by the end of the year in an effort to approach the omnipresence of WeWork, the city’s dominant name in shared workplaces.
The expansion comes amid growing demand for Knotel’s niche in the shared-office market: companies that have 50 to 200 employees — too big for the typical co-working environment — that want their own turnkey offices and are not ready to commit to the kind of fixed-term leases landlords typically demand.
“We serve bigger companies than co-working does,” says Amol Sarva, Knotel’s co-founder and CEO. “Companies prefer to use a service like ours than to sign leases, and, on the other side, ownership is finding it uneconomical to serve short-term company leases. Owners are facing customers these days who don’t want to sign fiveor even three-year leases.”
By the end of this year, Knotel expects to have about 50 locations in New York, at least 45 of them in Manhattan, Sarva says. It has 14 now, and will have 20 by the end of this month, with about 400,000 sq ft (37,000 sq m) of space. Knotel, founded almost two years ago, expects to have about one million sq ft under lease at end-2017, which would make it the third-largest provider of temporary offices in the city, behind WeWork and Regus, the world’s biggest flexible-office company.
WeWork, founded in 2010, has become the world’s largest co-working start-up, with a global presence. The company, valued at more than US$17 billion ($23 billion), has 3.1 million sq ft in the New York area, and will have 3.8 million sq ft by the end of the year, according to CoStar Group, a Washington-based real estate research firm. Regus, which has 1.49 million sq ft in the area, will grow to 1.52 million sq ft by year’s end.
New York is underserved when it comes to office space without long-term leases, with room for many players, Sarva says. WeWork is “really small compared to the office market. New York has 450 million sq ft of offices, and those guys are 1% or less. London is really the headquarters for it.”
In central London, co-working and flexible-office providers just surpassed banks and technology companies as the biggest source of office demand. Such companies leased a record 884,000 sq ft in 1H2017, or 18.3% of the market, according to brokerage Cushman & Wakefield.
WeWork has been expanding the universe of people it serves, offering its design services to established traditional companies that want to rebuild their offices in the company’s open, collaborative style. In April, it made a deal to manage an entire 10-storey, 87,000 sq ft Greenwich Village building for International Business Machines, and it has offered memberships to companies of all sizes to have their employees use the space.
Dominic McMullan, a WeWork spokesman, says he had no comment on Knotel’s expansion plans.
Knotel is not alone among WeWork competitors expanding in New York. On July 10, Chinese company UrWork announced a partnership with co-working startup Serendipity Labs that will open a 34,000 sq ft location at 28 Liberty St in lower Manhattan, the former Chase Manhattan Building. Regus’ parent IWG is opening the first Manhattan location for its Spaces co-working unit at the Helmsley Building, in 55,000 sq ft formerly occupied by Regus, Michael Berretta, a Spaces vice-president, said on July 11.
Among recent additions to Knotel’s offices are three locations in the Flatiron District, one in Hudson Square and one in the Gowanus section of Brooklyn. Sarva says the company expects to announce more locations in Flatiron, Chelsea, the Village, Soho, the Financial District and the neighbourhood north of Madison Square known as NoMad. The company typically rents 25,000 to 50,000 sq ft per location.
William Rudin, CEO of New York landlord Rudin Management, says his company has showed space to Knotel.
“It is a different model than WeWork,” he says. “It’s very smart of them. This just adds to the offerings that tenants are looking for today, in terms of more flexibility. I’m not saying WeWork doesn’t do that, but this is the only thing they do.”
One place Knotel will probably not go to, at least for now, is Dock 72, the ground-up office development at the Brooklyn Navy Yard that Rudin is building along with Boston Properties — and where WeWork is the anchor tenant. Sarva says the company is more interested right now in building up its critical mass in Manhattan. The company will have 10 locations just between 14th and 31st streets in Manhattan, he says.
