Knotel overtakes WeWork in number of New York sites

Rocket Internet-backed start-up aims to exceed rival in terms of square feet next year

A Rocket Internet-backed rival to WeWork has leased more buildings in New York City than its SoftBank-backed competitor and aims to overtake it as the city’s biggest private occupier of office space next year.

Knotel, which has raised $100m from technology and real estate investors, provides flexible offices aimed at mid-sized businesses, with the companies’ own brands — rather than Knotel’s — over the door.

Amol Sarva, chief executive, said the group had 70 locations in New York versus WeWork’s 48, and would have opened 150 in the city by the end of this year. WeWork has another 11 locations scheduled to open in New York, to take its total to 460 sites globally.

While Knotel’s sites tend to be smaller, Mr Sarva said the company could exceed WeWork’s 5.4m sq ft of space in New York City in 2019.

WeWork, however, is fighting back. While its distinctive offices, heavily branded with the WeWork logo and style, have proved popular with small companies and departments of large corporates, in August it launched a different proposition, HQ By WeWork, aimed at mid-sized companies.

It said this would offer privacy and a company’s distinctive identity along with flexible terms. “Your space has to look and feel like your own,” it said of the new offer.

Three-year-old Knotel is one of a series of start-ups that have sprung up in WeWork’s wake to take out long leases on offices and then let them to companies in short-term deals inclusive of internet, furnishings and other services.

Mr Sarva, also the founder of Virgin Mobile USA, argues flexible, inclusive leases will become standard for “normal companies that make up most of the economy”.

IWG, the world’s largest operator of flexible office space and parent company of Regus, also offers unbranded spaces which make up 3 to 4 per cent of its business.

Knotel’s Series A funding round last year attracted tech investors including Germany’s Rocket Internet, Bloomberg Beta and the accelerator programme 500 Startups. A fresh round that raised $75m in June added real estate investors such as the brokerage Newmark Knight Frank.

By contrast WeWork most recently raised $1bn from SoftBank and is valued at $20bn. It offers a greater range of services including co-working, communal spaces and events.

Knotel is growing beyond its home market: it has signed 11 deals on spaces in San Francisco and is close to announcing six in London, while it acquired the German operator Ahoy!Berlin in July.

Tushar Agarwal, co-founder of Hubble — a London-based online marketplace for flexible offices — said there was a gap in the market for space in major cities aimed at mid-sized companies.

“It’s a very binary choice: you can use a co-working centre that is typically branded and suited to companies up to 25 or 30 people, or a five or 10-year lease where you have to do everything yourself.

“There is a huge market need . . . for medium-sized businesses to rent an office that is like a traditional leased office but without the hassle of dealing with five or 10 different contractors, solicitors, lawyers, agents and repair people — and to pay on a monthly basis, which is better for cash flow.”

Analysts have warned, however, that the market has never tested appetite for flexible office space on the scale that is currently being developed.