WeWork in bid to poach tenants from competitors
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