Knotel’s Emergence
Office space design and operational modalities are constantly changing. This is especially so in competitive markets such as New York, London, San Francisco, and Tokyo. Companies are constantly reinventing how their employees should work including lighting, furniture, and layout concepts. But interestingly, over the past decade, changes in the business of office space have emerged with new concepts such as coworking (the WeWork model) and managed leases. More recently many coworking companies such as WeWork, The Yard and Knotel have introduced headquarters as a service offerings.
Headquarters as a Service
Headquarters as a service is a new phenomenon where a provider such as Knotel leases space from a building owner (currently there are 50+ locations) builds, furnishes, and wires the space, provides basic services including cleaning, maintenance, and management, and subleases or licenses the space to businesses for a flat monthly fee. Knotel will sign short term office leases of as little as three months offering lots of flexibility to growing businesses. Their tenants don’t have to hassle with managing the different service providers such as internet, cleaning, and paper vendors only paying a single bill every month. Additionally, as they grow, their tenants can swap spaces within the Knotel network at any time. For this convenience tenants will pay between $100.00-$125.00/ RSF. Sounds expensive! Let’s look at the numbers to understand whether Knotel is a bargain or an expensive hotel to park your business.
Cost Breakdown
There are several off the grid costs of leasing office space including electricity, cleaning, internet, refreshments, and cleaning supplies that will need to be considered when comparing Knotel and other Headquarters as a Service companies to a traditional lease. Let’s analyze the numbers for a 5,000 RSF sublease space in Flatiron. (Find out how much space you need here.)
| Knotel | Office Lease | |
|---|---|---|
| Rent | Included | $50.00/ RSF |
| Electricity | Included | $2.50/ RSF |
| Additional Utilities | Included | $0.25/ RSF |
| Internet | Included | $1.25/ RSF |
| Office Supplies | Included | $1.00/ RSF |
| Misc | Included | $3.00/ RSF |
| TOTAL | $100.00 ($41,666/ mo) | $58.00 ($24,166/ mo) |
So Knotel stacks up to be $17,500/ mo more expensive equating to $420,000 over the 2 year lease term.
But that’s not necessarily where Knotel excels. One of Knotel’s key selling points is the minimal out of pocket cash required to occupy its space. Knotel boasts a low security deposit of around 3 months for a 1 year lease, 4 months for a 2 year lease, and 5 months for a 3 year lease, and is delivered fully built including furniture, IT wiring.
Here are the numbers assuming a 2 year lease term on the same 5,000 RSF sublease space:
| Knotel | Lease | |
|---|---|---|
| Security Deposit | $125,000 (3 months) | $125,000 (6 months) |
| Furniture | Included | $25,000 (or included in sublease) |
| IT | Included | $6,250 (or included in sublease) |
| Designer | Included | $6,000 (or included in sublease) |
| Buildout | Included | Included |
| Total | $125,000 | $125,000 - $162,250 |
Knotel vs Subleasing Office Space
However some of the answers provided by Knotel are less relevant when considering subleasing space as an alternative. Subleases typically trade at a discount to the market rent, are usually fully furnished and wired, and more often than not have a shorter lease term . Additionally, from our experience, sublandlords often don’t require as much of a security deposit as building owners freeing up more cash. What Knotel does provide is an easy hassle free sign on onboarding experience.
What else?
Becoming a member of Knotel means that you’ll choose a space within their portfolio and which could be a perfect fit or might require some compromises on your part. Some 5,000 RSF tenants need an extra large board room for town halls and investor meetings, some need extra meeting rooms, and some need private offices. With Knotel, unless you’re willing to sign a longer term lease the space is the space. Leasing your own space comes with the ability to fully customize your office space to suit the unique requirements of your business.
Conclusion:
Knotel could be equated to renting a car- it’s a great short term solution requiring little out of pocket with no maintenance costs. However over the long term leasing space from Knotel becomes much more expensive as any savings is overcome by the significant premium in the monthly rent. Additionally, the out of pocket savings could be obtained by finding a built furnished sublease.