(Bloomberg)—Startup Knotel Inc. is planning to more than triple its office space in New York by the end of the year in an effort to approach the omnipresence of WeWork Cos., the city’s dominant name in shared workplaces.
The expansion comes amid growing demand for Knotel’s niche in the shared-office market: companies that have 50 to 200 employees -- too big for the typical co-working environment -- that want their own turnkey offices and aren’t ready to commit to the kind of fixed-term leases landlords typically demand.
“We serve bigger companies than co-working does,” said Amol Sarva, Knotel’s co-founder and chief executive officer. “Companies prefer to use a service like ours than to sign leases, and, on the other side, ownership is finding it uneconomical to serve short-term company leases. Owners are facing customers these days who don’t want to sign five- or even three-year leases.”
By the end of this year, Knotel expects to have about 50 locations in New York, at least 45 of them in Manhattan, Sarva said. It has 14 now, and will have 20 by the end of this month, with about 400,000 square feet (37,000 square meters) of space. Knotel, founded almost two years ago, expects to have about 1 million square feet under lease at the end of 2017, which would make it the third-largest provider of temporary offices in the city, behind WeWork and Regus Plc, the world’s biggest flexible-office company.
WeWork, founded in 2010, has become the world’s largest co-working startup, with a global presence. The company, valued at more than $17 billion, has 3.1 million square feet in the New York area, and will have 3.8 million square feet by the end of the year, according to CoStar Group Inc., a Washington-based real estate research firm. Regus, which has 1.49 million square feet in the area, will grow to 1.52 million square feet by year’s end.
New York is underserved when it comes to office space without long-term leases, with room for many players, Sarva said. WeWork is “really small compared to the office market. New York is 450 million square feet of offices, and those guys are 1 percent or less. London is really the headquarters for it.”
In central London, co-working and flexible-office providers just surpassed banks and technology companies as the biggest source of office demand. Such companies leased a record 884,000 square feet in the first half of the year, or 18.3 percent of the the market, according to brokerage Cushman & Wakefield Inc.
WeWork has been expanding the universe of people it serves, offering its design services to established traditional companies that want to rebuild their offices in the company’s open, collaborative style. In April, it made a deal to manage an entire 10-story, 87,000-square-foot Greenwich Village building for International Business Machines Corp., and it has offered memberships to companies of all sizes to have their employees use the space.
Dominic McMullan, a WeWork spokesman, said he had no comment on Knotel’s expansion plans.
Knotel isn’t alone among WeWork competitors expanding in New York. On Monday, Chinese company UrWork announced a partnership with co-working startup Serenity Labs Inc. that will open a 34,000-square-foot location at 28 Liberty St. in lower Manhattan, the former Chase Manhattan Building.
Among recent additions to Knotel’s offices are three locations in the Flatiron District, one in Hudson Square and one in the Gowanus section of Brooklyn. Sarva said the company expects to announce more locations in Flatiron, Chelsea, the Village, Soho, the Financial District and the neighborhood north of Madison Square known as NoMad. The company typically rents 25,000 to 50,000 square feet per location.
William Rudin, chief executive officer of New York landlord Rudin Management Co., said his company has showed space to Knotel.
“It is a different model than WeWork,” he said. “It’s very smart of them. This just adds to the offerings that tenants are looking for today, in terms of more flexibility. I’m not saying WeWork doesn’t do that, but this is the only thing they do.”
One place Knotel will probably not go to, at least for now, is Dock 72, the ground-up office development at the Brooklyn Navy Yard that Rudin is building along with Boston Properties Inc. -- and where WeWork is the anchor tenant. Sarva said the company is more interested right now in building up its critical mass in Manhattan. The company will have 10 locations just between 14th and 31st streets in Manhattan, he said.
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