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Is Co-working Over Or Just Getting Started?

[Updated: Mar 05, 2021 ] Mar 05, 2021 by Deidre Woollard
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While WeWork has made headlines for its meteoric rise and sudden fall, not all co-working companies are struggling. In fact, there have been some interesting deals lately that suggest smaller co-working companies may be primed for a rebound.

The Wing, a community and co-working brand for women, was one of the darlings of the pre-COVID-19 era. Founded in 2016, the company gained thousands of members and expanded internationally. It raised over $117 million in venture capital, including investments from Serena Williams and Megan Rapinoe. However, trouble started to brew as the pandemic took hold. The Wing laid off dozens of employees, and CEO and co-founder Audrey Gelman stepped down amid claims that the company mistreated minority workers.

The company found an unlikely savior in IWG (GBX: IWC LLC), the parent company behind Regus. Unlike flashy companies like WeWork (a former investor in The Wing), Regus has been around in one form or another since 1989. IWG took a majority stake in The Wing and could signal renewed hope for the future of smaller co-working companies that cater to specific audiences.

Other co-working companies get a big boost

Industrious, a co-working start-up that actually expanded during 2020, announced last month that CBRE (NYSE: CBRE) was taking a 35% stake in the company. Even more interesting was the fact that CBRE is turning over its own co-working brand, Hana, to Industrious. The deal was worth around $200 million, and CBRE could buy another 5%. One reason Industrious succeeded where others failed was that it inks partnership agreements rather than leases with many of its landlords.

Knotel, which was one of WeWork's biggest competitors in Manhattan, was acquired in February for a reported $70 million by Newmark Group (NASDAQ: NMRK) It had raised over $560 million, according to Crunchbase, but filed for bankruptcy at the end of January, around the same time it announced the acquisition. Knotel still faces a long road to profitability, but the fact that Newmark saw value in the company is another sign that real estate companies see future value in co-working.

What the future could hold

We've written before about the rise of co-working in suburbia and that it's part of a larger trend of the decentralization of offices. The long-ranging implications of the COVID-19 pandemic might be that mobility has unlocked new options for how people work, making co-working a more viable option even for those who are full-time workers. While corporate campuses may have attracted workers in the past, the future may include more decentralized spaces that are nearer to workers' homes. The hybrid model that includes both office time and remote work could be a major boon for co-working.

This may also be good news for some struggling hotels. Before the pandemic, there was a clear demand for co-working space. Now there is a priority for safety as well as for spaces that are located near where people live. This could mean hotels may be viable options for co-working. In fact, Industrious has an arrangement with the Wythe Hotel in New York City to convert hotel rooms into private office suites.

In the past, part of the need for co-working was driven by entrepreneurs seeking a place to work but also looking for a community, which led to the rise of niche co-working brands. Now, more of the co-working demand could come from employees working remotely and in need of a private place to videoconference. That shift will change how co-working facilities are laid out as well as how they are marketed in the months and years ahead.

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Deidre Woollard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.