Washington Business Journal: Knotel Expands to D.C.

As published in the Washington Business Journal.

New York-based flexible workspace provider Knotel has inked a deal for its first location in the District, but there's no room for you there.

The company recently leased about 12,500 square feet at 909 E St. NW, a former auction house that Douglas Development Corp. is converting into office space. But instead of hosting a mix of sole entrepreneurs, freelancers, and small businesses that often patronize coworking and flexible space models, Knotel has agreed to provide custom-built space for the exclusive use of data and analytics platform Premise Data.

The arrangement was the culmination of two searches coinciding at the same time; Knotel for an inaugural location in D.C., and Premise Data for a new location after it outgrew smaller space in Arlington. Both homed in on the same real estate at the same time, said Eugene Lee, Knotel's chief investment officer and global head of real estate.

With about 200 locations in 17 cities, Knotel's business model is based on positioning itself between landlords and companies whose space needs are in flux.

"We give companies the ability to grow and shrink," Lee said. "We also let them choose terms. We don’t have minimums, we don’t have maximums. It's up to you to tell us what you want, what you need."

Newmark Knight Frank brokers Mike Shuler and Morgan Monroe represented Knotel in the lease while a CBRE team including Bruce Pascal represented Douglas Development. Shuler said he believes the model will become increasingly popular with companies that want to avoid the cost of building out new space and instead leave that work to an intermediary like Knotel.

Knotel is entering a crowded coworking market populated by the likes of Carr Workplaces, Regus and WeWork. At the same time, the industry may be close to hitting an inflection point after posting significant drop in new leasing activity for the final three months of 2019.

But unlike many of its peers, Knotel seeks to distinguish as a flexible space provider rather than a purveyor of shared coworking spaces or hybrid with both shared workspaces and flexible, custom-built spaces.

The company doesn't have hot desks, as those unreserved spaces are known, and it takes a more targeted approach by seeking out prime locations like in D.C.'s Penn Quarter where it believes there will be sustained demand. It commits to long term leases its members might be reluctant to commit to due to uncertain future space needs. Knotel's customers typically commit to short-term agreements of two or three years.

When those companies outgrow their space, it aims to work with them to find, lease and build out space in new locations elsewhere for its tenants and bring on new businesses to fill the void created by those moves. That positions Knotel to grow as the needs of its members change, Lee said. The company has identified several other locations in downtown D.C. and the East End, but Lee declined to disclose specifics.

The high-profile financial challenges facing coworking firm WeWork and other similar businesses have led many landlords to become more risk-averse to those kinds of tenants in their buildings. Some, including JBG Smith Properties, are requiring those tenants to put up more security at lease signing than other types of users. To allay concerns, Knotel seeks to cultivate strong relationships with the owners of the buildings it picks for its locations, Lee said.

As for the the long-term commitment Knotel assumes with those landlords? "If we're performing and we are filling our spaces with clients, there isn't a reason for us to have an end point," Lee said. "There is plenty of room for us to grow, and we will look to do that thoughtfully with our clients in mind.