I’ve enjoyed watching these two companies compete. Though their offering is similar, their business models are wholistically different.
We’ll get into that in a second, but first … forward this to a couple of friends who might find this topic interesting, and tell them to subscribe here. I send one weekly email — no spam.
WeWork vs Industrious
Before the pandemic, I shopped both WeWork and Industrious spaces for a Bullpen office in San Francisco. Industrious was slightly more expensive than WeWork but gave me a chocolate bar after their office tour. Overall, they provide very similar experiences.
However, WeWork and Industrious have very different business models. While WeWork engages in rent arbitrage, Industrious forms partnerships with landlords.
WeWork Rent Arbitrage
Rent arbitrage involves leasing space on a long-term, low-cost lease –> breaking it up into smaller spaces –> then leasing the smaller spaces at a much greater price on short-term leases. WeWork acquired a massive footprint using the strategy, but it comes with risks.
- You are subject to short-term market conditions, which can impact the leasability and rate of your small spaces.
- You are subject to large rent increases when the long-term lease expires.
Rent arbitrage is largely responsible for WeWork’s famous pre-IPO collapse a few years ago.
Unlike WeWork, Industrious forms profit-share agreements with building owners. The concept is similar to percentage rent, where tenants pay a percentage of their sales to the building owner in return for favorable lease terms. While this has an obvious benefit (little lease risk), there are a few downsides to this strategy:
- Slow growth – it’s harder to negotiate partnerships than sign leases
- Lesser locations – you’re more likely to be in the basement than the top floor
There are hundreds of small coworking operations in cities around the US, many of which fail each year. If you’re considering starting a co-working business, keep in mind that economies of scale matter, and be strategic with your lease terms.
Let me know if you found this interesting. Catch you next week!