WeWork in bid to poach tenants from com­peti­tors

Irish Independent - Business Week - - Commercial Property - Ellen Huet

LAST Septem­ber, New York-head­quar­tered WeWork Cos made a show of try­ing to poach cus­tomers from ri­val co-work­ing com­pa­nies dur­ing the slower months of late sum­mer and early au­tumn. Em­ploy­ees of the co-work­ing gi­ant cold-called com­peti­tors’ tenants, set up games and couches out­side of other shared-of­fice spa­ces and of­fered up to a year’s free rent if they switched over.

This year, WeWork is en­list­ing an­other party in the bat­tle: bro­kers. The com­pany is of­fer­ing com­mer­cial real es­tate bro­kers world­wide a 100pc com­mis­sion on the first year of rent paid by any ten­ant who switches to WeWork from a top com­peti­tor and signs a lease by Oc­to­ber 1. Tenants also get half off the first year’s rent if they sign for at least 12 months. That means, ac­count­ing for the dis­count, that WeWork’s cur­rent bonus to bro­kers is five times the stan­dard com­mis­sion it typ­i­cally of­fers of 10pc on the first year’s rent.

Com­peti­tors say that gen­er­ous bonus is be­hind a new wave of bro­kers cold-call­ing their tenants and try­ing to tempt them away, of­fer­ing them half off a year’s rent if they switch to WeWork.

“A year ago WeWork had some of their staff com­ing to our lo­ca­tions unan­nounced, pos­ing as prospec­tive cus­tomers, tak­ing a tour, walk­ing around, tak­ing pic­tures of lo­gos of com­pa­nies they saw, then email­ing and call­ing them di­rectly and of­fer­ing them dis­counts,” said Amol Sarva, chief ex­ec­u­tive of­fi­cer of Kno­tel Inc, a WeWork com­peti­tor that of­fers busi­nesses flex­i­ble work spa­ces sim­i­lar to co-work­ing ser­vices. “Now they’ve hired an on-de­mand plau­si­ble-de­ni­a­bil­ity army to do the dirty work.”

WeWork de­clined to spec­ify which ri­vals a bro­ker would have to lure a ten­ant from in or­der to re­ceive the pro­mo­tion, but in the US the list in­cludes Kno­tel, IWG Plc and In­dus­tri­ous, ac­cord­ing to peo­ple fa­mil­iar with the deal, who asked not to be iden­ti­fied be­cause the de­tails are not pub­lic.

Late sum­mer is a slower time for WeWork’s co-work­ing busi­ness, the com­pany said, which is why it does sea­sonal pro­mo­tions around now.

Part of the rea­son WeWork can af­ford such large pro­mo­tions is that it has raised bil­lions in fund­ing, in­clud­ing $4.4bn (¤3.77bn) from SoftBank Group Corp last year. Us­ing ven­ture cap­i­tal funds to kneecap com­peti­tors is a com­mon strat­egy in Sil­i­con Val­ley, and real es­tate providers of­ten lure tenants and bro­kers with dis­counts and bonuses. But the new pro­gramme sug­gests WeWork is strengthen- ing its re­la­tion­ship with bro­kers and also raises ques­tions about its abil­ity to keep its build­ings full as it con­tin­ues to ex­pand at eye-wa­ter­ing speed.

At the end of last year, 82pc of WeWork’s of­fice space was oc­cu­pied, ac­cord­ing to bond of­fer­ing doc­u­ments re­viewed by Bloomberg. As it adds lo­ca­tions around the globe (it’s on the brink of be­com­ing the largest cor­po­rate ten­ant in Man­hat­tan), the startup of­ten of­fers dis­counts to “as­sist in driv­ing ini­tial oc­cu­pancy lev­els,” which made its av­er­age rev­enue per mem­ber drop more than 6pc last year, ac­cord­ing to the doc­u­ment. Its over­all sales and mar- ket­ing costs, mean­while, rose from $43m to $143m in 2017.

As it’s grown, WeWork has come to rely more on real es­tate bro­ker­ages. WeWork started an of­fi­cial bro­ker com­mis­sion pro­gramme about two years ago, the com­pany said, and in March started dou­bling com­mis­sion rates for bro­kers from top firms CBRE Group Inc, Cush­man & Wake­field Inc and Jones Lang LaSalle Inc.

WeWork said 18 months ago, bro­kers re­ferred few tenants but now re­fer 20 to 25pc.

De­spite its tight­en­ing ties with bro­kers, WeWork is also ex­plor­ing com­pet­ing with them. Last month, it launched We- Work Space Ser­vices, a pilot pro­gramme for medium-sized busi­nesses in which WeWork acts as a bro­ker for com­pa­nies who want space but can’t find it in a WeWork. “WeWork Space Ser­vices will al­low us to re­tain our re­la­tion­ships with ex­ist­ing mem­bers who would oth­er­wise have left a WeWork space by pro­vid­ing them with al­ter­nate real es­tate so­lu­tions while ben­e­fit­ing from con­tin­ued ac­cess to our net­work and com­mu­nity,” WeWork’s chief growth of­fi­cer Dave Fano wrote in a blog post.

“I don’t know ex­actly what WeWork’s in­tent is,” said Jamie Ho­dari, the chief ex­ec­u­tive of­fi­cer of In­dus­tri­ous, an­other flex­i­ble of­fice provider. “But I think if you look at the be­hav­iour and what their stated plans are, prob­a­bly the most ac­cu­rate de­scrip­tion is they have a short-term plan with re­gard to bro­kers, which is to use them where pos­si­ble to their ad­van­tage, and a long-term plan, which is prob­a­bly to erase the en­tire in­dus­try.”

WeWork it­self may face in­creased com­pe­ti­tion mean­while from Chi­nese ri­val Ucom­mune. The com­pany has been in talks with in­ter­na­tional in­vestors to raise about $200m (¤171m) in a se­ries D fi­nanc­ing round as it pre­pares for an ini­tial pub­lic of­fer­ing as early as next year.

Hong Kong is the most likely place for the list­ing and the com­pany has held in­for­mal ini­tial talks with stock ex­change of­fi­cials there, founder Mao Daqing said in Sin­ga­pore, where he opened Ucom­mune’s sec­ond co-work­ing space in the coun­try last week.

Ucom­mune is rac­ing against WeWork and lo­cal ri­vals such as MyDreamPlus to be­come China’s lead­ing provider of shared of­fice space amid a boom among tech star­tups. It re­cently an­nounced a new 300m yuan (¤37m) fund­ing that val­ued the busi­ness at $1.8bn (¤1.54bn).

“We are plan­ning to go for the cap­i­tal mar­ket for more fi­nanc­ing to ex­pand more quickly,” Mao said. “We al­ready have the kind of scale; we are the sec­ond-largest in the world in terms of lo­ca­tions, num­ber of mem­bers and the num­ber of cities we are cov­er­ing.”

The com­pany has made China its top pri­or­ity with plans to have 300 lo­ca­tions in the coun­try within the next two to three years. Out­side of China, the com­pany plans to open its third space in Sin­ga­pore and Hong Kong soon. It’s also plan­ning to open new space in Bangkok, he said.

“China’s mar­ket is not ma­ture yet, and it has a large num­ber of cities,” Mao said.

WeWork mean­while plans to add as many as 50 new lo­ca­tions in the Greater China re­gion by the end of this year.


The in­te­rior of WeWork’s head­quar­ters in Man­hat­tan’s Chelsea dis­trict

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