You are here
To lure new tenants, WeWork ratchets up broker commissions
LAST September, WeWork made a show of trying to poach customers from rival co-working companies during the slower months of late summer and early autumn.
Employees of the co-working giant cold-called competitors' tenants, set up games and couches outside of other shared-office spaces and offered up to a year's free rent if they switched over.
This year, WeWork is enlisting another party in the battle: brokers. The company is offering commercial real estate brokers worldwide a 100 per cent commission on the first year of rent paid by any tenant who switches to WeWork from a top competitor and signs a lease by Oct 1.
Tenants also get half off the first year's rent if they sign for at least 12 months.
That means, accounting for the discount, that WeWork's current bonus to brokers is five times the standard commission it typically offers of 10 per cent on the first year's rent.
Competitors say that generous bonus is behind a new wave of brokers cold-calling their tenants and trying to tempt them away, offering them half off a year's rent if they switch to WeWork.
"A year ago WeWork had some of their staff coming to our locations unannounced, posing as prospective customers, taking a tour, walking around, taking pictures of logos of companies they saw, then emailing and calling them directly and offering them discounts," said Amol Sarva, chief executive officer of Knotel, a WeWork competitor that offers businesses flexible work spaces similar to co-working services. "Now they've hired an on-demand plausible-deniability army to do the dirty work."
WeWork declined to specify which rivals a broker would have to lure a tenant from in order to receive the promotion, but in the US the list includes Knotel, IWG and Industrious, according to sources.
Late summer is a slower time for WeWork's co-working business, the company said, which is why it does seasonal promotions around now.
Part of the reason WeWork can afford such large promotions is that it has raised billions in funding, including US$4.4 billion from SoftBank Group last year.
Using venture capital funds to kneecap competitors is a common strategy in Silicon Valley, and real estate providers often lure tenants and brokers with discounts and bonuses.
But the new programme suggests WeWork is strengthening its relationship with brokers and also raises questions about its ability to keep its buildings full as it continues to expand at eye-watering speed.
At the end of last year, 82 per cent of WeWork's office space was occupied, according to bond offering documents reviewed by Bloomberg.
As it adds locations around the globe (it's on the brink of becoming the largest corporate tenant in Manhattan), the startup often offers discounts to "assist in driving initial occupancy levels", which made its average revenue per member drop more than 6 per cent last year, according to the document. Its overall sales and marketing costs, meanwhile, rose from US$43 million to US$143 million in 2017.
As it has grown, WeWork has come to rely more on real estate brokerages.
WeWork started an official broker commission programme about two years ago, the company said, and in March started doubling commission rates for brokers from top firms CBRE, Cushman & Wakefield and Jones Lang LaSalle.
WeWork said that a year and a half ago, brokers referred few tenants but now refer about 20 to 25 per cent.
Despite its tightening ties with brokers, WeWork is also exploring competing with them. Last month it launched WeWork Space Services, a pilot programme for medium-sized businesses in which WeWork acts as a broker for companies who want space but can't find it in a WeWork.
"WeWork Space Services will allow us to retain our relationships with existing members who would otherwise have left a WeWork space by providing them with alternate real estate solutions while benefiting from continued access to our network and community," WeWork's chief growth officer Dave Fano wrote in a blog post.
"I don't know exactly what WeWork's intent is," said Jamie Hodari, the chief executive officer of Industrious, another flexible office provider. "But I think if you look at the behaviour and what their stated plans are, probably the most accurate description is they have a short-term plan with regard to brokers, which is to use them where possible to their advantage, and a long-term plan, which is probably to erase the entire industry." BLOOMBERG