WeWork Rival Knotel Builds Its War Chest, Makes a Bet on Blockchain

A startup firm that is competing with

WeWork Cos.

in the flexible-office-space business and planning a service that will use blockchain to track space listings just closed a $70 million funding round.

Knotel
,

which was founded in 2016, said the funding round was led by well-known names in the property business, including

Newmark Group
Inc.,

a real-estate services firm that went public late last year, and the Moinian Group, a big owner of commercial real estate in the New York region. Other investors included Wolfson Group, Sapir Organization and Wainbridge Capital.

Together with a $25 million funding round last year, the latest investments brings Knotel’s capital raised to close to $100 million. The deals value the firm at roughly $500 million, according to PitchBook, a research firm owned by Morningstar.

Knotel has deals with landlords in 45 office buildings in New York, San Francisco and London that enable it to lease space in those properties on a short-term basis to tenants seeking flexibility.

“We’ll be opening another 100 by the end of the year,” said

Amol Sarva,

Knotel’s co-founder and chief executive.

Mr. Sarva said Knotel also is working on a separate service that will record commercial-property listings using blockchain, a technology best known as the ledger behind cryptocurrencies like bitcoin. “Every office listing, every single little piece of detail, is essentially trafficked today as a PDF file emailed around by brokers,” he said. “That is so dirty and opaque.”

Knotel’s latest funding round is a sign of strong investor interest in companies hoping to profit from big changes taking place in the once-staid office-space business. Like other commercial-property markets, including hotels and retail, office space is being disrupted by new entrants relying heavily on technology and appealing to new demands from younger consumers.

The first big disrupter was WeWork, which was founded in 2010 and was a pioneer in leasing out big blocks of space and redesigning them as co-working facilities for startups and entrepreneurs. WeWork has over 240 locations in 71 cities that are used by more than 210,000 customers.

WeWork and its competitors are going after workplace changes affecting larger tenants as they try to stay nimble to adapt to rapid transformations of their industries. The mantra among these tenants is they want shorter and more-flexible leases, not the fixed 10- or 15-year leases traditional landlords are used to signing.

Tenants “need to be agile,” Mr. Sarva said. “We have big companies and medium-sized growth companies that are saying ‘I need a space, but I’m sick of doing leases. I have no idea how big my head count will be in a year, much less 10 years.’”

Flexible and co-working space operators accounted for more than 10% of all office deals in London and New York last year, according to brokerage firms. Experts predict they will eventually account for close to 20% of leases signed in major markets.

“There’s a lot of headroom,” said

Marcus Moufarrige,

chief operating officer of Sydney-based

Servcorp
Ltd.

, which has about 160 locations in 54 cities. “It’s a big sector of a big market worth lots of money.”

Knotel typically signs leases with office landlords and then cuts deals with tenants looking for flexible space. Knotel provides its customers price protection as well as the ability to reduce space quickly if they need to shrink, Mr. Sarva said. “They know part of the proposition is that if they phone us up and say we need to reduce or we need more space, [Knotel] will help them land smoothly,” he said.

Knotel also enables tenants to sign leases much faster than traditional office deals which can take over 18 months. “That’s insane,” Mr. Sarva said. “Amazon can get you a toothbrush in an hour. But an office lease takes more than one year.”

Knotel’s plan to use blockchain to operate a listing service is still in the planning stages. Mr. Sarva said Knotel’s service will likely give credits to people who put accurate data into the system. Those who use it passively will pay for access, he said.

Knotel already has a window into listings through its investors, which include big office-building owners and service firms. “”I think we have some heft to start moving the needle,” he said.

Write to Peter Grant at [email protected]

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