WeWork has acquired a rival coworking company, Spacious, for an unspecified price. The deal bulks up WeWork’s coworking holdings in its own backyard — Manhattan — where Spacious has most of its locations, though a handful are in Brooklyn.
“WeWork is still in growth mode — they need to hit those growth numbers post-IPO, and a couple acquisitions would help them do that,” Renaissance Capital Senior IPO Market Strategist Matthew Kennedy told Fortune.
Spacious’ business model, though rooted in coworking, is a little different from WeWork’s, so the deal also represents an expansion of WeWork’s model. Spacious transforms restaurants during their off-hours into temporary workspace.
“Landlords have been super-interested in what we’re doing because we represent the ability to experiment and activate the retail storefront,” Spacious co-founder and CEO Preston Pesek told Bisnow. “That’s our angle and we found that landlords are at the table.”
The Spacious deal came almost immediately after WeWork parent company The We Company released the prospectus for its long-anticipated initial public offering. The prospectus noted that WeWork lost nearly $700M in the first half of 2019, and said it will likely lose more money “in the foreseeable future.” One way WeWork has been burning through its capital has been via acquisitions — the Spacious buy is only WeWork’s latest acquisition, and probably a small one at that, though WeWork hasn’t said how much it paid. (Spacious’ Series A funding last year netted it about $9M.)
WeWork’s buys have not only increased its market share, they have expanded its international scope. The company acquired Chinese coworking company Naked Hub in 2018 and Singapore-based Spacemob the year before. This year, WeWork has broadened its tech holdings as well, buying data platform Euclid, mobile access platform Waltz and real estate management platform SpaceIQ, among others.
The coworking industry has been growing along with WeWork. JLL predicts that by 2030, coworking will represent 30% of the office market. Coworking operators in the U.S. accounted for a record 13.4M SF or 7.6% of total office square footage leased in 2018, according to CBRE. Leasing activity by coworking so far this year indicates that 2019 could surpass that record. As of midyear, coworking operators have leased almost 7.1M SF in 2019 across all markets tracked by CBRE, or about 8.5% of all leasing activity nationwide. WeWork’s competitors remain bullish on coworking regardless of what happens to their mega-competitor or whether its IPO sputters. They also expect further consolidation in the market.
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