WeWork Cos. took the real estate world by storm on its way to an initial public offering that’s set to be among the year’s biggest. It’s not the only co-working firm that’s primed for new heights.
More and more companies are vying to meet global demand for hip, furnished offices without the commitment of a long-term lease. Some, such as IWG Plc’s Regus, preceded WeWork. Others followed in the footsteps of the powerhouse that’s raised more than $12 billion and opened locations in more than 100 cites. For many firms in the sector, the IPO, planned for next month with a target of $3.5 billion, proves co-working is here to stay.
In the U.S., the flexible-office sector has grown an average of 23% each year since 2010, the year WeWork was founded, Jones Lang LaSalle Inc. reported. By 2030, such firms could account for 30% of office stock, up from less than 5% today, the brokerage projects.
WeWork’s IPO will serve as a benchmark for the valuation of the entire co-working sector, according to Danny Ismail, an analyst at Green Street Advisors. Public information on the profitability and sustainability of its business has been limited, so the limelight on WeWork’s financials is likely to reflect on its rivals as well, he said.
“WeWork’s competitors need to continue raising capital to grow their business,” Ismail said, “and depending on how WeWork is received by the public market, it could help or hurt their peers.”
In the past few years, IWG has invested heavily in its Spaces brand, which caters to millennial workers with trendier offerings like warm color palettes and coffee from local roasters. Well-established brokerages and landlords, including CBRE Group Inc. and Tishman Speyer, have launched their own flexible-office options. Startups that have sprung up to capture niche segments are attracting large institutional and private equity investors.
A representative for New York-based WeWork declined to comment. Here are some of the firm’s top competitors, based on footprint and the amount of funds raised:
Switzerland-based IWG, which owns multiple flexible-office brands, is the biggest company in terms of space, with close to 60 million square feet (5.6 million square meters) globally. WeWork, by comparison, had 45 million square feet as of March. Unlike its upstart rival, IWG’s Regus has survived multiple recessions, including the dot-com crash, which forced it into bankruptcy in 2003, less than three years after the company went public.
Founder and Chief Executive Officer Mark Dixon sees the positive side of having such an aggressive competitor: WeWork’s rapid growth and high profile have helped trigger a boom in demand for flexible space.
“We have the biggest network, so we are the biggest beneficiary from WeWork,” Dixon said in an interview, adding that IWG’s U.S. business has seen a jump in revenue growth. “That’s a market that’s deemed to be very competitive. It is the home of WeWork, so by WeWork and others talking more in the market, it generates more business for us.”
The IPO will also provide a good comparison for IWG, especially its expanding Spaces brand, which has been doubling its revenue rate each year, Dixon said. “Public company disclosure rules in the U.S. are onerous, so therefore the playing field will become level.”
New York-based Convene, which specializes in flexible meeting, events and office space, has attracted high-profile investors including Brookfield Property Partners LP and RXR Realty. The firm, with 30 locations, has raised $260 million since its founding in 2009. It’s in the midst of exploring additional financing, said Chief Executive Officer Ryan Simonetti, who declined to elaborate.
“If WeWork’s IPO does really well, it’s a huge lift to the industry,” Simonetti said by phone. “It’s just further validation that the real estate industry continues to evolve and change, and companies like ours continue to benefit from this change.”
The six-year-old firm, based in New York, teams up with landlords such as Blackstone Group Inc.’s EQ Office to manage flexible offices in their buildings and split the profits. It has 84 locations and $142 million in investment from firms like QuadReal Property Group and Wells Fargo Strategic Capital.
Industrious’s model contrasts WeWork’s usual method of leasing space from landlords to keep the upside if things go well, though WeWork has recently begun pursuing more management contracts, too.
“The management-based partnership model that we’ve pursued is a lot less risky and a lot safer for everyone involved” in case of a downturn in the market, Industrious, CEO Jamie Hodari said.
Three-year-old Knotel has been expanding rapidly across the U.S., Europe and Latin America since its founding in 2016. The New York-based firm, which builds and runs flexible work spaces for larger tenants seeking shorter-term leases, has more than 200 locations globally and $160 million in funding.
Knotel says its edge in the market is that it caters to established companies with 100 or more employees, not the much-smaller businesses that would typically use co-working spaces. That focus “is why our business has grown faster and more efficiently than anyone,” co-founder and CEO Amol Sarva said in an email.
Founded in 2012, Breather has expanded across 500 locations with $123 million in funding from investors including Caisse de Depot et Placement du Quebec, one of Canada’s largest pension funds. The Montreal-based firm differentiates itself by making its short-term offices and meeting rooms bookable on-demand, “as easily as an Uber.”
Its private-office service, which had a 300% increase in revenue in the past year, now accounts for half of Breather’s business, up from 30% in the beginning of 2019. The firm aims to continue raising funds for growth given the strong interest from investors, according to CEO Bryan Murphy.