Will the Co-Working Model Eliminate the Need for Brokers?
Co-working companies have reportedly caused a disruption in the marketplace in terms of how owners reward brokers for securing licenses and short-term leases. WeWork has reportedly been incentivizing brokers in a more aggressive structure than is typical in the industry. According to a Bloomberg article, “WeWork Is Ratcheting Up Broker Commissions to Lure New Tenants,” WeWork offered brokers 100 percent commission on the first year of rent paid for a company that switched from a competitor to their space, and then gave brokers generous bonuses if that company stayed.
Apparently, this generous incentive led WeWork brokers to use some unconventional lead-generating tactics that roiled the competition. They purportedly sent staff to tour competitors’ offices on the pretense that they might want to rent spaces and took pictures of the company logos they saw there. They later cold called those companies directly.
The article posited that WeWork is using brokers to get the market familiar with WeWork and is likely to stop using them once people are familiar with its product and can just go online to WeWork’s website and book the spaces themselves. A company of 10 people who need collaborative space may eventually need a whole floor for its growing business. So WeWork may be using a short-term plan with brokers to cover the market, but the long-term plan is actually to eliminate them from the market.
If you’re thinking of dedicating a portion of your commercial property to co-working space, see “Drafting Licenses & Leases for Nontraditional Commercial Space,” available to subscribers here.