Start-Ups Flock to WeWork, Cage, and Other Low-Commitment Spaces


When Melissa Pancoast moved her financial literacy startup, The Beans, to a WeWork office in San Francisco’s Salesforce Tower last May, most of the offices around her were rented but empty.

As vaccine rates soared and San Francisco flirted with lifting pandemic restrictions, so did neighbors. Ms. Pancoast’s social calendar soon filled up with bike rides and coffee dates with other startup founders she met in the building.

Today, the co-working space is bustling. “Telephone booths and conference rooms have become valuable goods,” said Ms. Pancoast.

One of 1,100 members at the three-story, 76,400-square-foot WeWork location with panoramic views of the San Francisco Bay. Its neighbors include startups making business software, online recruitment tools for engineers, and open source database systems.

New members are dying to join. WeWork said most offices have waiting lists, and daily table reservations — spaces opened for WeWork members without dedicated office spaces — are regularly sold out. This corresponds to a 46 percent occupancy rate at WeWork’s San Francisco locations in December 2020.

The demand for WeWork in Salesforce Tower is an indicator of how start-ups are starting to return to offices around the Bay Area. Instead of going to traditional offices, they prefer flexible co-working spaces where they can sign short-term leases or enter the common space as needed. These co-working spaces are now bursting at the seams.

The long-awaited return to the office coincides with a startup environment. showing signs of staggeringafter two years of free-flowing venture capital cash and rising valuations. Technology stocks fell, interest rates rose, and geopolitical unrest contributed to a general sense of uncertainty.

In uncertain times – as startups experience tremendous growth with the knowledge that the financing faucet may just be closing – short-term leases are more appealing than ever before. Startups are flocking to spaces like the national chain WeWork and smaller collaborating companies with more elaborate designs, such as San Francisco-based Canopy and New York-based Industry.

“Startups traditionally go to markets where they will buy rentals and find a Canopy, WeWork or Industry,” said Hugh Scott, general manager of commercial real estate firm Jones Lang LaSalle.

Beans were one of them. “Things were still really unclear as to what our trajectory was and the plan is to close some significant capital and grow,” Ms Pancoast said. “We need the flexibility to be in a different space than we can afford in the midst of the pandemic,” he said.

But for many co-working spaces, short-term rental models that appeal to beginners can sometimes present risks, especially during the pandemic.

Covo, unfortunately named co-working space in San Francisco’s Mission District, lost 94 percent of its business in the first months of the pandemic. It was closed as of October 2020.

Last May, the founders tried again. They reopened with a new name, Trellis, and a new business model: Instead of a traditional lease, they negotiated a revenue-sharing model with the landlord. Trellis would pay a much lower minimum monthly payment than its previous lease, and the landlord would receive a share of the revenue, sharing the potential profit and risk.

“In the past, the landlord didn’t take risks – all the risk is in the tenant,” said Rebecca Pan, co-founder of Trellis. “Asking for something like, ‘Why would I do that? I don’t need to take risks.’ The pandemic has changed that a little bit.”

Other co-working spaces have been moving towards a revenue-sharing model since pre-pandemic. This includes stand-alone spaces such as Port Workspaces, which has two locations in Oakland, California, and Blankspaces, which has several locations in Southern California. Chains such as Industry and Common Desk, which were accepted to be acquired by WeWork this year, have also adopted revenue-sharing structures.

Perhaps the most famous collaborative company, WeWork itself took a different approach: Last fall, the company went public two years after the IPO was cancelled.

Last Thursday, WeWork reported A loss of $435 million in the first three months of 2022. The company said 501,000 members signed up in the first quarter, more than 100,000 compared to the same period last year, but still lower than before the pandemic.

The company said the Bay Area’s first onsite housing order in March 2020 meant many WeWork members had stopped coming. The building remained open for core businesses, but participation dwindled and some companies consolidated their WeWork memberships.

In October 2020, Merge, a start-up that makes business software for human resources, payroll and accounting, was one of the first companies to return to the WeWork location on Montgomery Street, a few blocks from the Salesforce Tower location. At this point, the company, which was founded a few months ago, consisted of two founders and an engineer with its first employees. Feeling trapped at home, the three were eager to work together and felt comfortable involving each other in the Covid-19 bubble.

“We were the only ones in the office,” said Gil Feig, one of the founders.

In February 2021, Merge moved to Salesforce Tower seeking larger office space as the company expanded. WeWork said occupancy at this location was starting to rise again, before increasing more rapidly after widespread availability of Covid vaccine appointments in May 2021.

Ms. Pancoast said Beans were part of that wave. There were already signs of increased interest in co-working spaces; snatched the last office of its size, she said.

But in a tight tech labor market, a back-to-office plan can be a break-even factor for potential employees. And not everyone is excited to go back to a cell.

“Some people I talk to are itching to go back to the office, but I get a lot of responses saying they wouldn’t accept an offer without a full remote option,” said Abigail Lovegrove, a recruiter for the collective. Search is a recruitment firm that operates out of Salesforce Tower WeWork.

Mo El Mahallawy, co-founder of Shepherd, a start-up that provides insurance to the construction industry, moved in with two colleagues last May.

“Being face to face was a big game changer at that stage,” said Mr. El Mahallawy. “We were able to draw ideas in the room, do a whiteboard together, do a jam session, scatter ideas and prototype really quickly.”

But “that whole area was still a ghost town,” he said.

Over the next few months, the “ghost town” began to come back to life. He and Mrs. Pancoast started biking and meeting their neighbors. Mr. El Mahallawy said he had crossed the field at the end of the summer and moved to a nearby WeWork.

After the optimistic turn in the fall, WeWork said daily visitor numbers fell in December and January as the typical holiday exit combined with an increase in the Omicron variant of the coronavirus.

By February, members were starting to return as San Francisco ended its masking requirement for most indoor spaces.

A Valentine’s Day event, complete with chocolate fountains, felt like a throwback to pre-pandemic extremism—but “it wasn’t a two-way situation,” Ms. Pancoast said.

For some companies, the goal is to create a pre-pandemic office environment. Merge, which now has about 40 employees at its San Francisco and New York locations, expects employees to come to the office four or five days a week. After the official business day is over, they offer a communal “family meal” in WeWork’s common area.

Mr. Feig acknowledged that his company’s insistence on working in person limited the number of workers he could hire.

In the early stages of hiring, “You’re going to have some candidates like, ‘This is no for me – I disagree with that,'” he said. “But once you somehow knock out the 20-30 percent who didn’t get the job, you get 70 percent of the candidates who are really excited about this opportunity.”

Mr. Feig said he hopes to expand the company to 80 or 100 employees by the end of the year. He plans to keep the company at least partially in co-working spaces.

Nick Kephart, Merge’s vice president of marketing, said the ideal plan would be a mix. “The current plan,” he said, “will be kind of a mix: in some cities of sufficient scale, to start having our own private office space; in some cities, stick with WeWork; and in other cities we may actually open new offices.”



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