The transfer of ownership is now under way and Newmark has given Knotel debtor-in-possession financing of around $20m (£14.5m) to support its day-to-day operations.

But it is not just the future of Knotel that is in question. As experts ask what went wrong at the business, they are also assessing what the impact will be on the wider flexible office market.

Announcing the move, co-founder Amol Sarva placed the blame squarely at the door of Covid-19.

“The pandemic created a uniquely challenging operating environment, with significant impacts on leasing velocity and the rate of renewals in key markets, particularly New York and San Francisco,” he said.

“We must address this now to position our business for sustainable growth and a successful future.”

However, drawing parallels with WeWork, experts say the writing was already on the wall when the business embarked on an aggressive expansion campaign.

The New York-based business, founded in 2016, rapidly scaled up its UK and international footprints in 2019, having told Property Week in March of that year that it planned to quadruple its global footprint to 9m sq ft in 12 months.

A year later, the business made 30% of its staff redundant and placed another 20% on furlough, leaving it with a workforce of around 200. By the time of its bankruptcy filing, the business had around 110 employees on its books.

A director from one international flexible workspace operator says it went too fast and too hard.

“When you have a blank chequebook and your target is to chase revenue growth – the same as WeWork – you can find as many deals as you want and don’t necessarily have to look at the fundamentals in the long term,” he says.

“Knotel beat me to several buildings because it had agreed deals at rents of £10/£20 per sq ft above what we thought would make sense. If you’re spending too much on your rent, you shoot yourself in the foot on day one.”

Wrong focus

A senior flexible workspace agent in London adds that Knotel’s focus on offering HQ space and filling large floorplates with a single customer limited its rental income.

“They were taking very big assets that couldn’t be divided,” he says. “If you have a 20,000 sq ft floorplate that doesn’t get taken up quickly, that’s a lot of rent roll to sit on.”

Will Kinnear, director of advisory business HEWN, says Knotel also found itself competing with landlords rather than flexible operators, which was a harder market to disrupt.

“Across the world, landlords are starting to provide fitted out space themselves. Knotel was doing the same as landlords but having to charge more for it,” he says. “This process has been accelerated because of Covid-19 but it would have come around anyway.”

The director of the flexible workspace operator agrees. “If there hadn’t been a pandemic, it would have gone on for longer – it was more sustainable than WeWork – but it would still have the same problems,” he says.

He adds that Knotel’s bankruptcy could lead to landlord uncertainty over the sector. “It will make people feel more nervous about flexible operators,” he says. “People will have to explain their business plans in more detail, but, frankly, they should have to do that anyway.”

The agent adds that even if landlords do become more cautious, tenant demand for flexible space is unlikely to slow.

“You could obviously worry that it’s going to have a reputational effect and make people concerned about going into it, but almost every requirement at the moment is looking at flex space,” he says.

The question is: will the landlords be there to satisfy that demand?