Commercial Real Estate

CEO of WeWork rival defends the office-sharing business model's ability to withstand a recession

Key Points
  • The business of providing coworking and flexible office space to companies can withstand recessions, Knotel CEO Amol Sarva says.
  • "I feel really confident that defense-minded CEOs, when they are on defense, they're going to come to flex and away from leases," Sarva says.
  • Knotel, a WeWork competitor, is valued at more than $1 billion.
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The business model of companies that provide coworking and flexible office space can sustain recessions, Knotel CEO Amol Sarva said on CNBC on Tuesday.

"I feel really confident that defense-minded CEOs, when they are on defense, they're going to come to flex and away from leases," Sarva said on "Squawk Alley."

Founded in 2015, New York-based Knotel is one of many players in the increasingly popular business of providing office space to other businesses.

But the underlying premise of that model has lately come under scrutiny, as perhaps the most well-known provider, WeWork, considers an initial public offering. WeWork's parent company delayed its IPO on Monday amid criticism its CEO has too much power and a shrinking valuation, but it still plans to go public by the end of the year.

Critics worry that an economic downturn could be problematic for shared-office providers because businesses typically trim their workforce and reduce office space costs during recessions.

Longtime commercial real estate investor Sam Zell, for example, told CNBC earlier this month that WeWork and its ilk are not innovative.

"Every single company in this space has gone broke," Zell said then.

But Sarva pushed back on those criticisms, particularly for Knotel, which focuses on providing flexible office space for midsized companies and other established organizations. That is how Knotel differentiates itself from competitors, Sarva has argued.

In general, coworking spaces have the connotation of being used by freelancers and smaller start-ups in need of office space, but many large companies are clients. In its IPO filing, WeWork said 40% of its members worked for organizations with more than 500 employees, for example.

And Knotel, which raised $400 million in its latest funding round in August, has clients such as SeatGeek and Twilio, according to its website.

"We serve large companies. They're not moving every day or every week," Sarva said.