WeWork ratcheting up broker commissions to lure new tenants

Employees of the coworking 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 October 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.

WeWork says their corporate clients value being part of a “global community”. Photo: WeWork

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 Inc., a WeWork competitor that offers businesses flexible work spaces similar to coworking 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 Plc and Industrious, according to people familiar with the deal, who asked not to be identified because the details are not public. Late summer [in the northern hemisphere] is a slower time for WeWork’s coworking 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 $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 program 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.

Members work in a common area at the Embarcadero WeWork offices in San Francisco, California. Photo: Mike Short/Bloomberg

As it adds locations around the globe (it’s on the brink of becoming the largest corporate tenant in Manhattan), the start-up 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 $US43 million ($58 million) to $US143 in 2017.

As it’s grown, WeWork has come to rely more on real estate brokerages. WeWork started an official broker commission program about two years ago, the company said, and in March started doubling commission rates for brokers from top firms CBRE Group, 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 program 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.