Knotel Cuts More Staff and Plans to Give Back Even More of Its Portfolio

“The U.S. market really hasn’t come back on the schedule that we’ve been forecasting while we’ve seen continuing growth outside of the U.S. over the last six months,” Sarva told Commercial Observer. “We’re going to try to match our staffing to help us serve our customers … that means we need to streamline our U.S. workforce.”

Sarva declined to provide details on the severance packages offered to staffers let go, but said, “We’ve tried to be as generous as we can.”

(Disclosure: Observer Capital, led by Observer Media Chairman and Publisher Joseph Meyer, is a Knotel investor.)

In April, Knotel  — which was crowned a unicorn last year — announced plans to walk away from about 20 percent of its 5 million-square-foot portfolio, with a big chunk of it focused in Manhattan. Sarva said Knotel has mainly hit that goal and is looking to give back even more spaces in the United States as it shifts its focus to the European and Japanese markets. (Sarva declined to say how much more space the company planned to give back.)

“The business globally — everywhere outside of the U.S. — is flat or slightly up; in the U.S. it’s been a tough environment,” Sarva said. “We’re going to continue exiting more properties because we anticipate more recovery time.”

As it restructures its portfolio, Knotel has been hit with numerous lawsuits from owners across New York City for not paying rent, with owners claiming the flex office provider owes more than $6 million.

“Landlords overwhelming have been really good partners; in some cases, folks have taken their disputes further,” Sarva said about the lawsuits. “On the whole, folks are really good partners and we’re trying to be a really good partner to them.”

Despite the lawsuits and leaked financials from Business Insider (which Knotel previously disputed) showing Knotel had net losses of $223 million last year, Sarva said the company is on track to become profitable by 2021. He added the further reduction of staff and its portfolio while it switches to a focus outside of the U.S. is all in the name of that goal.

“The collection of these different decisions in streamlining the workforce, matching it to our footprint, and also adjusting the portfolio away from city centers is designed to keep us on roughly the same profitability track we’ve been on,” Sarva said.

The coworking and flex office market has been battered during the pandemic, which forced workers into their homes and led to rent collection problems for providers.

Competitors like WeWork have laid off staff, and, in March, Knotel cut 30 percent of its staff, around 127 employees. Companies have also started to streamline their portfolios as they try to correct for the aggressive expansion tactic of years past.

“Operators are using this time to revisit some poor decisions in the past,” Francesco DeCamilli, vice president of flexible workspace at Colliers International (who was head of customer acquisition at Knotel), previously told CO. “They’re using this time to really reevaluate every one of their sites and rebalance coming out of COVID.”

Knotel has targeted “underperforming locations in cities where activity is down a ton” as spots to get rid of, Sarva said.

Even with the pain, experts have said that the flex office market will be on more and more companies’ minds in the future as they look to open up satellite offices to cut down on workers’ commute times and will be wary of signing long-term deals.

Knotel has seen demand from larger companies looking to make flex part of their portfolio while its traditional customer base of smaller- to mid-sized firms has been hurting.

“We’re in a transitional moment but we’re still very committed to flex being the future,” Sarva said. “As companies are deciding to make commitments as they’re rejiggering their plans the headline for all of them is they’re going to be coming back using flex.”