* Mid-sized business segment marks departure from coworking model
* Companies gain leasing flexibility but under own banner
By Herbert Lash
NEW YORK, Feb 27 (Reuters) - WeWork is expanding an effort to retain mid-sized businesses which had been leaving the shared office space manager after they grew past the small-company phase, and to catch up with rivals already catering to these clients.
HQ by WeWork, launched in San Francisco and New York in August to provide enhanced services for businesses with 11 to 250 employees, is targeting 11 overseas markets including London and Shanghai and other U.S. hot spots such as Boston and Denver, said executives at WeWork, a unit of The We Company.
The $42 billion New York-based “unicorn” in 2010 helped pioneer “coworking,” or shared desk-space, with a focus on startups, entrepreneurs and freelancers. WeWork has been losing clients as they grew to more than a dozen or so employees and found that sharing office space no longer suited their needs.
“Those companies were within the platform, but we weren’t going out of our way to serve them,” David Fano, chief growth officer at WeWork, said in an interview. “Some of the companies were saying, ‘Look, we really just want our own space.’”
The new service aims to help fill that gap between WeWork’s signature coworking platform and its offering for large companies with more than 1,000 employees.
“That’s our ultimate dream, that companies stay with us for life. From being a single-person start-up to the day that they’re Airbnb,” WeWork’s Fano said.
HQ by WeWork marks a departure from its coworking model of shared space as companies seek to build their own identity and environment, a service that Knotel, but few others operating flexible office space, has seized on exclusively.
Flexible office space gained its name from shorter-term leases than landlords typically offer, and their operators build out spaces that have services and are more fashionable.
Minimum leases for HQ by WeWork are two years and companies gain Wi-Fi, IT and audiovisual systems, along with access to WeWork’s global network of shared space and conference rooms.
Knotel recently said it has completed more than 2 million square feet of deals in Manhattan, or double that of HQ by WeWork. Industrious, a rival flex-space startup, in January said teams of 20 or more people make up its fastest-growing segment.
The initiative marks a shift where WeWork is no longer seen as taking incremental space from landlords with its coworking model but is competing with them for traditional clients even as they still lease the property owner’s space.
About 13 percent of HQ by WeWork members are previous clients. WeWork was unable to say how many potential HQ clients had left its operations.
But WeWork expects the HQ segment to account for some 70,000 of a projected overall membership base of 800,000 by year’s end, or double WeWork’s 400,000 members in January. A member is any individual working in a WeWork location.
WeWork last year became the largest private leasor of office space in Manhattan and operates almost 100 sites in New York City. WeWork told bond investors in November it was on track to post revenue of $2.3 billion in 2018.
“The marketplace is being disrupted, the most telling sign for that is landlords are starting to bring their own product into the market,” said Dom Harding, head of Workthere Americas, a new unit of brokerage Savills Plc that provides consulting for companies seeking flexible office space.
Many mainstream real estate companies, such as developer Tishman Speyer, brokerage CBRE Group Inc and Washington Real Estate Investment Trust, have spawned their own flexible office units to tap the demand for shorter-term leases.
HQ by WeWork has grown to 30 locations with almost 1 million square feet under lease in its two launch cities. The unit expects to have 270 locations open worldwide by the end of 2019 as it also targets office markets in Berlin, Toronto, Amsterdam, Jakarta, Sao Paulo, Los Angeles and Austin, Texas.
“WeWork continues to take bigger bites out of the existing tenant base instead of just pulling people out of coffee shops,” said Alexander Snyder, senior analyst at real estate-focused CenterSquare Investment Management in Philadelphia. (Reporting by Herbert Lash Editing by Dan Burns and Richard Chang)