Robert Khodadadian – Commercial Observer

The result is a renewed and wildly aggressive market for flex-space providers.

“It’s very competitive,” said Matt Himmelsbach, a managing director at Newmark (NMRK), who leads the company’s global coworking practice. “In markets that are getting hit harder with the office downturn, it’s an opportunity for coworking providers to get a better deal and lock in right now. Then, in markets that are performing well, you’ll see more strategic deals in areas that are more up and coming. But, either way, I think you’ll see expansion by operators in the next couple of years.”

Competition and the pressure on landlords to fill vacancies is particularly high in dense urban central business districts where WeWork had leased huge swaths of office space, Himmelsbach said.

“Most of the landlords that have coworking or WeWork space are getting unsolicited proposals from many, many operators,” he said. “It’s a bit of a knife fight to figure out who can actually come out on top. That will change, obviously, because I think WeWork will probably determine their final portfolio over the next six months.”

And proptech startups are bringing a set of different knives to the slicing and dicing of the market opportunity.

One such company is San Francisco-based Codi, a managed marketplace that provides private office flex space, said Christelle Rohaut, its founder and CEO.

“So, first of all, Codi is not a coworking company,” Rohaut said. “We see ourselves as an office as a service company. We help companies find and manage fully private, turnkey office space at the most flexible lease terms on the market. We match the company with the right property, which is typically an underutilized vacant office space. Then our consumer-style services handle moving and the office management process.”

Codi has seen a clear upturn in landlord interest in its service since the WeWork announcement, but even earlier in the year the startup began to aggressively poach WeWork’s tenants based on the company’s declining outlook, said Rohaut. 

“We have been proactive about it since the Q2 earnings call back in August,” she said. (That was the call wherein WeWork executives expressed “substantial doubt” about staying in business.) “It was pretty clear that they had four months of cash left. So at that moment we started a ‘WeWont’ campaign. We placed a booth in front of the WeWork buildings to raise awareness about the fact that WeWork is actively shutting down buildings, and we wanted to offer our support to companies and founders who would lose the office space and make them aware that Codi exists as an alternative.”

In October, Codi received a cease-and-desist letter from WeWork in response to its “WeWont” campaign. However, Rohaut remains unrepentant about marketing in the face of a company whose collapse she views as indicative of the fundamental barriers associated with the coworking model, as well as a clear sign that startups and growth-stage companies are rejecting shared office space as a whole.

“It’s one of those moments where if you don’t do it, then it’s going to be too late,” Rohaut said of the WeWont marketing. “There’s nothing wrong about what we did. It’s a fair competition, advertising, and raising awareness. At the end of the day, what matters is that companies and founders are aware of other solutions, because a lot of companies have been affected by the bankruptcy.”

In any case, the number of Codi clients who came from coworking increased by 1,100 percent year-over-year in 2023, said Rohaut.

Another proptech startup looking to fill the WeWork void is Radious, a Portland, Ore.-based online marketplace for residential workspaces.

Unlike flex space startups focused on the commercial real estate office market, Radious has made its niche in the residential sector, CEO Amina Moreau said of the company she co-founded in January 2022.

“We’re effectively a matchmaker between underutilized spaces and people who need space,” said Moreau. “Our specialty is in activating residential properties as workspaces. We operate similarly to Airbnb. We take homes, apartments, guest houses in people’s backyards, and we work with homeowners and property managers to ensure that they have all the workplace amenities that you and your team might need.”

Radious rents the spaces by the day, week or quarter, Moreau explained. “We work with companies on very flexible terms, because, at the end of the day, if your team only needs office space on a fractional basis, then why on earth wouldn’t you pay for it on a fractional basis?”

The startup focused on the residential side because repurposing empty commercial space is already a crowded proptech field, Moreau said. “The residential side offers us a really great differentiator, partly because we have all of the comforts of home,” she added. “But the biggest reason is because residential properties are in residential areas, precisely where people live.

“If you look at national statistics, the commute is the biggest barrier to returning to the office. So if we can tell employers that we have great workspaces right in their employees’ neighborhoods, then our platform reduces the barrier to in-person collaboration, work-life separation, and all of the benefits that come from being at an office, but without the biggest downsides.”

Proptech venture capital has another replacement theory concerning WeWork, said Dan Wenhold, partner and co-head of real estate technology investment at Los Angeles-based Fifth Wall. As early as 2017, Fifth Wall was looking at flex-space providers, Wenhold said. 

“We did look at WeWork and ultimately wound up making an investment in Industrious,” he said. “And a large part of the reason for that was the feedback we received from our strategic [limited partners], which is very important to our model.”

What made the difference for Fifth Wall in choosing to invest in Industrious was WeWork’s cost model, according to those partners.

“WeWork took a much higher fixed-cost path where they were signing just fixed-term leases with landlords in the central business district of a lot of large cities,” Wenhold said. “Those had high cost, high interest, and, as a result of that, they found themselves in a position that was difficult to unwind.

“On the other hand, Industrious took the approach of leaning into a more capital-light way of working with landlords. So with many of their partners, they would actually have revenue-share or management agreements with landlords. When they were building their business, we knew their capital efficiency and how much it would take to scale. They’ve continued to lean into that, and everything has kind of come full circle.”

Even as flex space demand grows, Fifth Wall is not looking to invest in other startups addressing the market, Wenhold said.

“We haven’t recently looked at other companies in the space or been close to investing in another,” he said. “Industrious is for us such a high-quality and scaled business at this point that we’ve made the determination we want to continue to invest fully into that company.”

Sam Rosen, CEO at Chicago-based Deskpass, which provides teams with quick access to desks, private offices and conference rooms in coworking spaces, offered an entrepreneurial take on venture capital’s current view on flex startups.

“Post-WeWork, post-COVID, frankly, VCs are cautious and less open to risk and uncertainty in the office market,” Rosen said in a statement. “They’re intrigued by the sea of opportunity, but wary of the next big wave. I don’t believe WeWork’s saga has dampened spirits; it’s sharpened focus. It’s less about a retreat and more about recalibration. I don’t believe the market isn’t shying away — it’s evolving with an eye for sustainable, scalable models like ours.”

Rob Gilman, partner and leader of the insurance real estate services group at Manhattan-based accounting advisory firm Anchin, advises his landlord clients on the financial viability of flex space companies. His view of WeWork’s future is dim.

“I don’t think that WeWork itself is going to come out of bankruptcy,” said Gilman. “I don’t think it’s worth it for SoftBank or some of the other investors to just make it a smaller model. I’m not sure how profitable they can make it in the near term, because their business model was taking all this space and they were getting favorable leases, a lot of free rent and buildout space.

“Tenants are now moving into commercial space, and landlords are very willing to give a lot of free rent and buildout allowance. But I don’t think they would allow that for WeWork itself, even though they’d be coming out of bankruptcy.”

WeWork declined to be interviewed for this story. However, a company spokesman offered the following statement: “WeWork is here to stay for our more than half-million members. Our spaces are open and there will be no change to the way we operate for our members. We plan to stay in the vast majority of markets as we move into the future, and remain committed to delivering an exceptional experience and innovative workspace solutions like WeWork Workplace for our members. We have exceptional confidence that we will emerge from this process a financially stronger company, so we can focus on investing in our products, our services, our growth, our employees, and our members.”

While some in real estate are pounding nails into WeWork’s coffin, a number of proptech experts see a revitalization of the coworking and flex space sector in general.

“Landlords and managers are increasingly turning to proptech companies to navigate the post-WeWork landscape,” said Ashkán Zandieh, managing director at the Center for Real Estate Technology & Innovation (CRETI), and formerly tri-state head of real estate and broker partnerships at WeWork, where he leased nearly 1 million square feet.

“In the wake of the fallout, some owners and managers are operating spaces once leased to WeWork. However, brokerages, especially those with a strong landlord representation business, stand to benefit,” Zandieh said in a statement.

Recognizing that WeWork’s bankruptcy is highly significant, Zandieh said it is not the final word on what the return to office will look like.

“It represents a pivotal moment for recalibration and innovation in the office space sector,” he said. “This event has spurred a rethinking of office space utility and design, pushing the industry toward more flexible, tech-integrated, and employee-centric models. The future of office spaces is being reimagined, and this transformation is an opportunity for growth and revitalization in the industry.”

Such has been WeWork’s impact, that its bankruptcy has been felt beyond U.S. borders.

“WeWork will probably successfully emerge from bankruptcy as a streamlined business, more financially viable,” said Dominic Penaloza, who headed innovation and technology for Shanghai-based WeWork Greater China from 2018 to 2020.

Penaloza is CEO and founder of Shanghai-based flex office space startup Peace, a “smart furniture” alternative that is being introduced to the U.S. market. Peace does not rent space, but rather offers landlords an opportunity to buy its product, Peace Pods, by paying for the pod capex and space, said Penaloza.

Whether WeWork’s future will be peaceful or an ongoing knife fight with creditors and competitors remains to be seen.

Philip Russo can be reached at prusso@commercialobserver.com.