US flexible office provider Knotel, which has overtaken WeWork in New York by number of locations and square feet, has aggressive plans to expand in major cities in Europe. Robin Marriott spoke to Eugene Lee, the company's global head of real estate and business development.
Knotel, which has already signed 10 leases in London and acquired AhoyBerlin! in Germany, believes it can replicate its New York footprint in the UK capital in 2019. The New York-headquartered company backed by $160 mln (€141 mln) of venture capital has aggressive plans to expand in major cities it is already present in, aiming to match New York where it has around 2 million sq ft spread over 80 office locations.
Knotel signed its first lease in London in the second quarter of 2018, taking 7,480 sq ft of space at Derwent Valley’s property in Great Titchfield Street. It now has a total 10 locations tied up in the capital, some of which are not yet public. Eugene Lee, global head of real estate and business development, told PropertyEU: ‘In London we have around 80,000 sq ft (7,432 m2). We expect all of the cities we are in to look like New York did when we started out three years ago. We had a handful of locations representing about 100,000 sq ft, but now have close to 2 million sq ft.’
As well as London and San Francisco, Knotel has also been expanding geographically by acquiring Ahoy!Berlin in the German capital. Further European locations are on its radar. Lee declined to divulge details on where the company is looking next. However, he explained: ‘We can say we perform very well in high-density, high-cost, popular markets where it is basically a nuisance to get an office. This is where we find the value of the flexible office space we supply to be high. You can expect us to be in any city with a big commercial centre eventually.’
Knotel discussed its business model and plans following the recent publication of JLL’s paper ‘Disruption or Distraction’. It is JLL’s first and most comprehensive report on flexible offices in Europe. The property services firm said the rise of flexible office space is resulting in one of the biggest shifts the real estate industry has ever seen and is forecasting the sector to grow by up to 30% over the next five years.
Competitor to ‘traditional lease’
Knotel, which has just celebrated its third year in business, sees itself as being a competitor to the ‘traditional lease’. Its model is not to provide month-to-month small glass box cubicles but to offer larger space on flexible terms. ‘We are not selling a product month-to-month. We are working with companies that might employ 100, 200 or 500 people that have no intention of moving month-to-month, but who at the same time are not interested in signing a 10-year lease,’ said Lee.
‘The reason we have been growing so fast on the supply side is that we are seeing tremendous demand from all types of companies: from small, high-growth venture capital-backed firms to those in the Fortune 100, and that has been our vision from the start. As we have grown the business, we have seen the size of company coming to Knotel increase very rapidly and look for space for an increasing duration of time.’
Lee added: ‘We enable them to access office space on flexible terms. A company might start with 10,000 sq ft but then require 20,000 sq ft. We will show them the options without the expense of breaking leases, lawyer costs, and sub-letting.’ The company says it is able to offer product fast. In the past it has been able to facilitate an office move for a company with 200 employees in two months from start to finish.
Lee explained the company was not like a typical landlord, which might operate one location in each of 50 cities, but that cannot help a company once its building is full. But being able to offer bespoke office space in many different locations in one city requires a large number of options, which in turn is why Knotel must expand rapidly. Lee: ‘We require a good amount of supply in order to have the product for our customers. It would not surprise me if we had between 50 and 100 locations in London next year. We have very ambitious plans for all the markets we are in.’
