NEW YORK (Reuters) - Burgeoning interest and investment in flexible workspaces is pushing a small corner of the commercial real estate market into the corporate mainstream, and drawing one top executive from Asia to help expand his company’s U.S. operations.
Media reports say Japan’s SoftBank Group Corp (9984.T), with expertise in information technology and telecommunications, is close to investing more than $3 billion in the U.S. office-sharing upstart WeWork. This would mark a major vote of confidence in the business and the sector overall.
Servcorp, an Australia-based rival to WeWork, believes the market is ripe for expansion and is sending its chief operating officer to New York with a goal of doubling U.S. operations, 22 locations, in about five years. “WeWork has really brought into the spotlight the fact that the flexible workspace is a fantastic solution, particularly for start-ups,” said Marcus Moufarrige, COO and the founder’s son of Sydney-based Servcorp, a leader in serviced office space and meeting rooms in Asia, the Middle East and Australia.
Moufarrige said in a telephone interview he would relocate to the United states by the end of the month.
Servcorp has 155 locations in 54 cities across the globe, while WeWork has 154 locations in 36 cities. Their styles differ, with WeWork geared to millennials and Servcorp serving the professional business class.
CNBC on Monday cited a source who said SoftBank was close to a $3 billion investment in seven-year-old WeWork. On Jan. 30, the Wall Street Journal cited sources saying the Japanese firm was “weighing an investment of well over $1 billion.”A deal with SoftBank would likely help WeWork jump through the hoops involved in entering the Japanese market. However, the company’s financial restraints as reported last year may pose hurdles, along with lack of a unique technological edge that the Japanese company typically seeks.
The ease of working at home or while on the road through smart phones and internet access has put pressure on companies and landlords to increase workplace amenities, but has not diminished the role of the office, experts say.
Investors have taken notice. Knotel, a two-year-old start-up, last week raised $25 million in venture capital and in September 2016 Industrious, considered the second-largest U.S. coworking operator with 18 sites, raised $37 million in funding, according to Crunchbase.
Commercial real estate brokers say shared office space accounts for at least 2 percent of the New York office market, the largest in the United States, but others put it higher. Amol Sarva, chief executive and co-founder of Knotel, said real estate usually involves risky lease commitments, a reason he took a page from the hotel industry to sign management agreements with landlords to avoid that liability. Sarva said it was suicidal to enter the real estate business with a business - coworking - that is deeply cyclical. His agreements are partnerships that share revenue, he said.
Moufarrige said Servcorp has an edge with its global footprint and a telecommunications network that connects all its sites on a seamless platform. He called the United States the company’s biggest opportunity. WeWork’s rapid expansion, and its reliance on start-ups as customers, has raised the question of what happens when the economy softens. WeWork reports it has increased the number of larger companies that rent space from it. Servcorp appeals to established companies, and Knotel aspires to that clientele as well. Along with a more flexible workspace businesses are going to demand better and more robust technology, Moufarrige said.
Reporting By Herbert Lash; Editing By Daniel Bases and David Gregorio