Roughly one-third of Knotel’s members are looking for a break on rent, the flex office space company disclosed Tuesday.
As Knotel grapples with its own financial woes, the figure sheds light on the dilemma facing co-working firms: a sudden loss of income from tenants, including many small businesses, as the coronavirus pandemic keeps people home across the world.
“We have been talking to every customer and having frank discussions with them about where they are,” CEO Amol Sarva said during a conference call Tuesday with reporters.
In recent weeks, Knotel has taken steps to reduce costs, including laying off or furloughing half of its 400-person staff. It is in talks to give back 20 percent of its office space, but in the meantime it has reportedly stopped paying rent at several locations.
Sarva on Tuesday characterized the workforce reduction and other actions as a “defensive posture.” Despite reports that the company is in dire financial straits, he said its liquidity “remains good.”
“It’s partly why we took some big steps — to make sure the company had the cash it needed,” the CEO said.
He said Knotel still expects to be profitable later this year. But instead of achieving that through growth, the company will operate lean.
“We went pencils down on new acquisitions,” he said. “In the future we will grow again, but now is not the time to be doing that.”
Despite many tenants seeking concessions, Sarva said “collections have been better than expected” so far in April. The company is still projecting to double its 2019 revenue this year.
Knotel finished the first quarter with $370 million of contracted annual revenue, up from $350 million at the start of the year. That compares to $100 million at the start of 2019.
Sarva said Knotel expects customers to return to work in mid-May and June, depending on their geography. One bright spot: Large customers in London, France, Tokyo and Toronto are moving away from signing traditional leases, which bodes well for flex-office providers. Knotel also has a backlog of customers ready to move in, Sarva said.
But he cautioned that the economic consequences of the pandemic are still unfolding, saying, “We are prepared for a more severe scenario.”