Mom and Pop’ companies don’t have the same financial backing as some of the industry’s bigger, more prominent players.
The co-working industry is likely to play into a lot of companies’ plans as they return to physical offices after the COVID-19 pandemic. Businesses will be more inclined to sign the shorter, more flexible lease terms that co-working office companies can provide, rather than the traditional, long-term agreements. The question however is which companies will get to enjoy the benefits of a growing demand for flexible office space?
While major co-working industry players like Knotel, IWG and WeWork appear ready to prosper in a post-COVID-19 reality, smaller shops face a less certain future, Bisnow reports. The lesser-known flexible office space providers don’t have the investment dollars on hand to keep them afloat during down periods.
“Us mom-and-pops have worked so hard to have the small piece that we had, and we’re giving back a much larger piece of what we’ve had now,” Primary co-founder and CEO Lisa Skye told Bisnow. Her company had to return 25% of its portfolio as it goes through the Chapter 11 bankruptcy process. “For the larger operators, it’s a less significant impact.”
In Manhattan alone, small co-working companies gave back 180,000 square feet over 12 months up until March, according to Colliers. Smaller companies like Primary saw Industrious acquire its 25,000 square foot co-working office space in Midtown, Bisnow reports. Meanwhile others like The Assemblage, designer and architect-focused co-working company A/D/O and Ignitia Office closed their doors permanently. About 20%, or 25 million square feet, of all co-working spaces have closed across the U.S., according to Upsite, an online co-working space network. Almost half (46.4%) of those closures were operators who just had one location in one market.
“Large companies have the resources,” Global Workspace Association Board President William Edmundson told Bisnow. “They have the teams they have enough locations where they can call on this group of enterprise companies, they can be a resource for those because they’ve got it locations across the country, whereas a mom-and-pop doesn’t. It’s the scale.”
As an example of the safety net the larger co-working companies enjoy, WeWork, Knotel and IWG returned approximately 2.4 million square feet throughout Manhattan last year. All three are still standing and are in position to grow. WeWork has been especially fortunate; Manhattan’s largest operator returned, closed or subleased almost 1.8 million square feet in New York City alone in 2020, according to Savills data, Bisnow reports.
Meanwhile, Knotel filed for bankruptcy earlier this year, but was saved when real estate brokerage Newmark not only acquired the co-working space provider, but also provided it with $20 million. The company was also in a position to walk away from more than 393,000 square feet of Manhattan flexible office space—before and during its bankruptcy, according to Savills
“Our restructuring will enable us to strengthen our balance sheet, focus on a right-sized portfolio of locations, and maintain relationships with our customer base while continuing to build on Knotel’s differentiated service offering,” former Knotel CEO Amol Sarva said in a statement when the company filed for bankruptcy. “We continue to believe in Knotel’s potential in the growing flex market.”
Industrious also found itself in a favorable position. The company increased its footprint by more than 1 million square feet during the COVID-19 pandemic. It took over WeWork, Primary and other operators’ abandoned spaces. Despite its growth, Industrious returned space to landlords so it could rework its portfolio so it only comprised office space where it had a management agreement.
The bigger co-working companies may have drawn a majority of investors’ dollars, but the small and mid-sized firms still make up a majority of the industry, Bisnow reports. If they falter, the entire market will feel it.
“The WeWork’s, the Knotel’s, the IWGs, those guys are like 20 percent of the market,” Global Co-working Unconference Community founder and Executive Producer Liz Elam said. “The other 80 percent is small-to-medium-sized business operators. We did not get all of the (Paycheck Protection Program) we needed, we did not all get loans we needed and so you know) the pandemic) really, really affected small business.”
Joe Dyton can be reached at email@example.com.