Startups are flocking to WeWork, Trellis and other low-commitment spaces

Last May, when Melissa Pancoast moved her financial literacy start-up, The Beans, to a WeWork office in the Salesforce Tower in San Francisco, most of the offices around her were rented but unoccupied.

As vaccination rates soared and San Francisco flirted with lifting pandemic restrictions, its neighbors started trickling in again. Ms. Pancoast’s social calendar quickly filled with bike rides and coffee dates with other fledgling founders she met in the building.

Today, the co-working space is buzzing. “Telephone booths and conference rooms have become precious commodities,” said Ms. Pancoast.

She is one of 1,100 members at the 76,400-square-foot WeWork location, which has three floors of panoramic views of San Francisco Bay. Its neighbors include business software start-ups, online engineering recruiting tools, and open-source database systems.

Calling new members to join. Most offices have waiting lists, and daily desk bookings — drop-in spaces for WeWork members without dedicated office spaces — are running out regularly, WeWork said. That’s an increase from the 46 percent occupancy rate at WeWork’s San Francisco locations in December 2020.

Demand for WeWork in the Salesforce Tower is an indication of how start-ups have begun to return to offices in the Bay Area. Instead of going to traditional offices, they are opting for flexible co-working spaces, where they can negotiate short-term leases or fill in the common space as needed. Those co-working spaces are now bursting at the seams.

The highly anticipated return to the office coincides with a startup environment showing signs of faltering, after two years of free-flowing venture capital cash and rising valuations. Tech stocks have fallen, interest rates have risen and geopolitical turmoil has contributed to a general sense of uncertainty.

In uncertain times – with start-ups booming, with the knowledge that the financing key can’t agree yet – short-term leases are more attractive than ever. Startups are flocking to spaces like WeWork, the national chain, as well as smaller co-working companies with more elaborate designs like San Francisco-based Canopy and New York-based Industrious.

“Startups are going into markets where they would traditionally enter leases and they find a Canopy or a WeWork or an Industrious,” said Hugh Scott, the executive director of commercial real estate company Jones Lang LaSalle.

The Beans was one of them. “It was still very uncertain what our trajectory was, and the plan is to close and grow significant capital,” said Ms. Pancoast. “We need the flexibility to be in a different space than we could have afforded in the midst of the pandemic.”

But for many co-working spaces, especially during the pandemic, the short-term lease models appealing to start-ups can sometimes present risks.

In San Francisco’s Mission District, the sadly named co-working space Covo lost 94 percent of its operations in the early months of the pandemic. In October 2020 it was closed.

Last May, the founders tried again. They reopened with a new name, Trellis, and a new business model: Instead of a traditional lease, they negotiated a revenue-sharing model with their landlord. Trellis would pay a minimum monthly payment much lower than his previous lease, and the landlord would take a cut of the income — sharing the potential profit and risk.

“In the past, the landlord didn’t take any risk — the whole risk is on the tenant,” said Rebecca Pan, co-founder of Trellis. “When they ask for things like that, they say, ‘Why would I do that? I don’t have to take a risk.’ The pandemic has changed that quite a bit.”

Other co-working spaces have been moving towards a revenue-sharing model since before the pandemic. That includes independent spaces like the Port Workspaces, which has two locations in Oakland, California, and Blankspaces, which has several locations in Southern California. Chains like Industrious and Common Desk, the latter of which would be acquired by WeWork this year, have also adopted revenue-sharing structures.

WeWork itself, arguably the most notorious co-working company, took a different approach: the company went public last fall, two years after its aborted IPO.

Last Thursday, WeWork reported a loss of $435 million for the first three months of 2022. The company said 501,000 members signed up in the first quarter, more than 100,000 more than the same period last year, but still lower than before the end of the year. pandemic.

The Bay Area’s first order, in March 2020, meant many WeWork members stopped getting in, the company said. The building remained open to essential businesses, but visitor numbers declined and some businesses consolidated their WeWork membership.

In October 2020, Merge, a start-up that makes business software for human resources, payroll, and accounting, was one of the first companies to return to a WeWork location on Montgomery Street, a few blocks from the Salesforce Tower location. At that time, the company – founded just a few months earlier – consisted of the two founders and an engineer, their first employee. The three felt cooped up at home and eager to collaborate in person, and they were comfortable adopting each other in their Covid-19 bubbles.

“We were the only ones in the office,” said Gil Feig, one of the founders.

In February 2021, Merge moved to Salesforce Tower, seeking larger office space as the company expanded. Occupancy rates at that location began to climb again that month before accelerating after agreements on Covid vaccines became generally available in May 2021, WeWork said.

The Beans were part of that wave, Ms. Pancoast said. There were already signs that interest in co-working spaces was recovering; she grabbed the last office of her size, she said.

But in a tight tech job market, the return-to-office plan can be a make-or-break factor for prospective employees. And not everyone is excited to go back to a cubicle.

“Some people I’ve spoken to are eager to get back into the office, but I get a lot of responses that they won’t take an offer without a full remote option,” said Abigail Lovegrove, a recruiter for the Collective. Search, a recruitment agency operating out of the Salesforce Tower WeWork.

Mo El Mahallawy, co-founder of Shepherd, a start-up that provides insurance to the construction industry, moved in with his two colleagues last May.

“Being in person was a big game-changer at that stage,” said Mr El Mahallawy. “We were able to draw ideas in the room, whiteboard together, do a jam session, throw ideas around and prototype very quickly.”

But “that whole area was still a ghost town,” he said.

Over the next few months, the “ghost town” began to come back to life. He and Mrs. Pancoast began taking bike rides and meeting their neighbors. By the end of the summer, Mr. El Mahallawy, he had outgrown the space and moved to a nearby WeWork.

After the optimistic return in the fall, daily visitor numbers took a hit in December and January as the typical holiday exodus coupled with the surge of the Omicron variant of the coronavirus, WeWork said.

In February, when San Francisco ended the masking requirement for most indoor spaces, members began to return.

A Valentine’s Day event, complete with chocolate fountains, felt like a throwback to prepandemic excess — although, Ms. Pancoast noted, “it wasn’t a double dip.”

For some companies, the goal is to create a prepandemic office environment. Merge, now with about 40 employees at locations in San Francisco and New York, expects employees to come to the office four or five days a week. After the official work day ends, they serve a communal “family dinner” in the WeWork common room.

Mr. Feig acknowledged that his company’s insistence on working personally limited the number of employees it could recruit.

In the early stages of hiring, “you have some candidates who say, ‘That’s a no for me — I don’t feel like it,'” he said. “But once you kind of knock off those 20.30 percent who aren’t interested in it, you get 70 percent of the candidates who are really excited about the opportunity.”

Mr Feig said he hoped to expand the company to 80 or 100 employees by the end of the year. He plans to keep the company, at least in part, in co-working spaces.

Merge’s vice president of marketing, Nick Kephart, said the ideal plan would be a mix. “The current plan,” he said, “would be a mix of: in some cities, where we have enough scale, to have our own private office space; in some cities, stick with WeWork; and in other cities, we could even create new ones.” open offices.”