Knotel Shares Strategy (Update)

NEW YORK CITY—In stacking up his company to WeWork, Knotel’s co-founder and CEO Amol Sarva says, “In San Francisco we just passed them in number of locations. In New York we have three times as many locations. In Paris we have four times as many locations.” The company is quickly growing, including its acquisition of the Paris-based Deskeo. However, CoStar states that “based on research verified data for all of New York City, Knotel has 58 locations and WeWork has 81.” In addition, CoStar notes in San Francisco WeWork has 17 locations and Knotel has 15.

WeWork is the largest occupier of private office space in Manhattan, leasing 5.3 million square feet. Its website states it has 605 opening and coming soon locations in 101 cities. Knotel leases 2.5 million square feet in more than 110 locations according to a March 5 press release. It’s in seven cities: New York, Paris, Berlin, San Francisco, Los Angeles, London and São Paulo. Plus, the company plans to open in Rio de Janeiro.

Sarva explains they are only interested in specific office markets, as 30 cities in the world are responsible for half the global economic output. Knotel focuses on providing flexible office space to the top 1,000 companies that are half the global office market.

He opines it’s a mistake to cover every city similar to hotel chains. “Is there a Hilton in Paris/? Is there a Hilton in Cairo? Well, there is not going to be a Knotel in Cairo or Marrakesh. The markets are too small. They aren’t large office markets.”

Sarva states his competitor’s creation in August 2018 of HQ by WeWork, flexible office space for companies with 11 to 250 employees, is similar to what Knotel has been doing from its start. “We don’t do little boxes. We do groups of 100, 500 or 1,000,” he says. “We are building a space for a national company. The way normal companies look is how Knotels look. The logo is IBM, AT&T, Netflix, Starbucks, Shell or Daimler. Those are our customers and they just have offices.”

Knotel states on its website that it has raised $100 million in funding and is valued at $500 million according to research firm Pitchbook. Sarva highlights three points that furthered his company’s rapid growth, since its founding in 2016.

“First, co-working is over” he says and now non-traditional office leasing is about flexible space. This doesn’t mean there are no more co-working leasing agreements or the need has totally disappeared. But for a lucrative, stable business, flexible office space involving relocations of hundred of people would not just be for short-term leases.

Sarva continues, “Second, we’re able to acquire more property more quickly and at better terms than anybody and the way we do it is a semi-automated process. Almost 10% of the properties we do deals on were done over the internet.” With Knotel Express, owners and brokers can submit a property, Knotel will quote it overnight and send a term sheet in 24 hours.

“Go find another deal around town that happens like that. They don’t. We’ll close on it in 30 days. We are already faster than the others in getting deals done. It takes us four or five months to a get a normal deal done. These take a month,” he says.

The third advantage Sarva cites is that after leasing properties, Knotel opens fast. He credits the company’s idea Zero. “A third of all the waste in landfills comes from this [the real estate] industry. Part of our approach on Zero is to get rid of construction. Do construction with zero construction. No sheet rock,” he explains. Knotel builds by reusing, readapting and working with a modular assembly system. He comments this reduces costs and gets the space ready in days instead of months. With their current headquarters at 229 W. 43rd St., the improvements and preparing the space took four weeks from start to finish.

In a Nov. 1, 2018 article, The Real Deal reported it obtained internal numbers and Knotel had an operating loss of $11.6 million on $17.6 million in revenues between January and July. The publication also wrote that the company’s weighted occupancy rate across all properties was 58% as of July.

WeWork was last valued at $47 billion, after SoftBank decreased its investments from $16 billion to $6 billion. According to multiple news accounts, WeWork reported a loss of $723 million last year. A January 7, 2019 article in The New York Times stated this spending more than generating revenue “led many analysts to believe WeWork is wildly overvalued.”

Other analysts have noted company strategies can include operating with losses anticipating revenue with future growth.

This article was updated on Monday at 2:45 pm with information about WeWork and Knotel locations in San Francisco and New York provided by CoStar.