Real estate technology firm Convene is planning to get into shared office company WeWork’s space and start to provide short-term office space to some of the biggest companies in the United States, according to The Wall Street Journal.
When Convene opened for business nine years ago, it provided conference, meeting and training spaces. Today, it wants to offer businesses short-term, flexible workspaces, too. The strategy is to set up ventures with landlords or lease out large spaces on its own, then divide those spaces out and rent them to different companies.
Convene has picked an ideal time to join the flexible office industry as more larger, corporate tenants want the ability to scale up and cut back at a moment’s notice. To do so, businesses have to be able to lease part of their space for only a few years, or even as short as months in some cases. The need for that type of flexibility has made the 10 to 15-year leases landlords have offered for decades a bit less attractive.
As this corner of the commercial real estate industry grows, the office rental business is being disrupted because the power is suddenly falling into new, more flexible companies’ hands.
Companies like Convene and WeWork are developing relationships with companies that used to work with landlords. To combat this trend, landlords are starting to offer flexible workspaces themselves. While this poses a threat to Convene, building owners are finding that the flex workspace business is challenging—especially when they are trying to compete with startups that are dedicated solely to these businesses.
“The largest asset class in the world is being disrupted,” Ryan Simonetti, Convene’s co-founder and chief executive, told The Wall Street Journal, in reference to the office market.
According to real estate services firm, JLL, flexible space could make up approximately 30% of office space by 2030–an increase from less than 5%.
Convene recently closed a $152 million funding round, bringing its total equity raised to $260 million. Traditional office landlords like Durst Organization, RXR Realty and Brookfield Property Partners were among Convene’s investors.
At this point, Convene has operations in 19 buildings in five cities and plans to open four more by the end of this year. Hartford Insurance, accounting firm EY and Comcast Corp. are some of the larger tenants who are working with Convene to have their space needs met. According to Simonetti, just about every company wants to make as many of their expenses as variable as they can.
Convene opened three workplace locations this year. The office amenities include lounges and meeting rooms, food and beverages, along with apps workers can use to reserve rooms, order food or find out about building events. The company plans to generate approximately $80 million in revenue this year.
As for Convene’s landlord investors, many have cooperated with Convene to open facilities, or are thinking about doing so. Brookfield anticipates up to 10% of its portfolio could be flexible space a company like Convene would run, according to Ric Clark, Brookfield Property Group chairman. Clark believes the winners in the landlord category will be those who are listening to their tenants’ needs.
The flexible workspace trend brings both a short-term payoff and a longer-term risk to the traditional landlord. While companies like Convene and WeWork are big tenants that can boost revenue, the short, flexible leases that more tenants are seeking make it more difficult for owners to finance their buildings because long-term cash flow is no longer a certainty.
“You have a riskier profile for an office building,” said Danny Ismail, analyst with Green Street Advisors.
It’s a risk for the Convene’s and WeWork’s of the world too, however. While demand for short-term leases and flexible space is high now, there has not been an economic downturn to test that demand’s strength yet.
It’s Convene’s goal to work alongside landlords, not pose as a threat to them.
“The fight that’s happening right now in the industry is who owns the customer and the customer experience, “Simonetti said. “Could that be perceived as threatening? Yes.”