Capital in Focus II: Why the co-working industry is showing strains

The fallout from WeWork Cos.’ failed IPO and subsequent valuation write-down reflects a potential contagion in the co-working arena that has not been contained to this one firm. As reported last week from various new sources, Knotel, one of WeWork’s main rivals, is also finding difficulty as well, announcing layoffs in New York City, and a couple of other smaller players such as Breather and Industrious are showing strains of what may already be an over-inflated and saturated market.

The co-working idea is not new and has been around for decades with major and minor firms filling this void. The difference with this newest incarnation is that the concept has been touted more as a “service,” “experience” and “amenity” supported by powerful proprietary technology that enhances the user experience for any tenant, large and small.

Full disclosure, we occupy a WeWork hot desk in New York City, and frankly, the service is awesome and we have been quite pleased by the experience. However, a great experience doesn’t necessarily translate into a full-blown and highly anticipated real estate valuation. This is not news to anyone who has seen these cycles before, and certainly the ebb and flow of the shared office space theater.

The reality of the matter is that these co-working organizations, as well intentioned and highly professional as they are, are not actually real estate companies. They’re actually hospitality companies with a great back end technology solution. Not exactly news, but it is quite interesting to see that this same scenario played out in the aftermath of the dot-com bubble of 2000–2001, and not much has really changed to change the dynamic of economic realities.

If anything, what is happening in the co-working industry may be a harbinger of further pain to be felt in the proptech world, and not too far in the future.

Read previous Capital In Focus coverage here.