Flex-workspace firm Breather has hired bankers to explore options including a sale, and it's a sign of a bigger consolidation push as office demand tanks

By Daniel Geiger

Breather, a flexible-workspace firm that carved out a niche renting small spaces for short windows of time, has hired Moelis & Company and is exploring options including a potential capital raise or sale, according to two sources with direct knowledge of the matter. 

A spokeswoman for Breather and a spokeswoman for Moelis, an investment bank and advisory firm that specializes in merger and acquisition deals and restructuring, both declined to comment. 

Financial distress has settled over much of the flexible-workspace sector amid the Covid-19 pandemic, which has sapped demand for office space and prompted many employees, even in places such as New York City where the virus has receded, to continue to work from home.

Read More: Flex-workspace firm Industrious is eyeing a big expansion in Asia and just inked its first deal outside the US.

"Revenue has dropped across the industry probably by 30% and during the worst of the pandemic it was down by as much as 50% to 60%," said Shlomo Silber, the co-founder and CEO of the flexible-workspace provider Bond Collective, which has nine locations in major cities around the country. "We have been approached by probably five different workspace companies already that are looking to either buy or sell or merge."

Silber said that workspace firms that focused on or had a preponderance of smaller tenants and individual members were likely the most vulnerable to the downturn because that clientele was the more likely to abandon space.

"Larger tenants, even if most of their employees haven't returned to the workplace, have mostly held onto flexible workspaces and kept paying rent," Silber said, noting that Bond Collective has a mix of big and small users. "Small tenants have been more likely to leave spaces and generally they also have the most flexible terms, which allow them to do so."

Coworking and flex-space firms have been hit hard by the pandemic 

Breather, a Montreal-based workspace provider founded in 2012, focused on amassing a large collection of small spaces just a few thousand square feet or less apiece and offered them to takers for weeks, days, or even an hour or less.

In early 2019, the company announced it had closed a successful $45 million fundraising round, bringing total investment in the brand to $122 million, it said. The company says it has hundreds of spaces in 10 major cities, including New York City, San Francisco, and London, and has big-name clients like Google, Spotify, and Airbnb.

Other workspace firms have appeared to also list during the virus crisis, which thrust the economy into a recession, caused tens of millions of job losses, and continues to impede daily life as a third wave of infections has taken hold across the country.

Knotel, for instance, has been unsuccessful in an effort to raise $100 million of rescue funding, has been sued by numerous landlords for non-payment of rent, and last week completed its third round of layoffs this year.

Read More: Knotel just slashed headcount again, with the flex-space provider's CEO telling staff he expected more of a bounceback in office demand by now.

Industrious, another workspace player, recently announced it is opening its first overseas location in Singapore, part of what it expects will be a rollout of several spaces in major cities in Asia, where the virus has generally been better controlled than in the US, Latin America, or Europe.

While several players in the industry struggle, some workspace experts see inklings of a recovery. If companies across the economy permanently adopt remote work, allowing employees to switch flexibly between the office and home, it could permit them to shrink their footprints, leaving landlords with growing vacancies they may rely on flexible workspace providers to help fill. Uncertain of their future occupancy needs, tenants may themselves turn more to flexible workspaces.

"The irony here is that landlords may actually see the value of flex workspaces now more than ever," said Charlie Morris, an executive at Avison Young who leads its flexible office solutions practice. "We're hearing about large companies that are telling their landlords they'll be downsizing and they need a flexible solution. They're telling owners, 'either open a flexible workspace or we're leaving.'"

Read more: Meet 20 top Wall Street restructuring bankers taking center stage as a wave of bankruptcies rocks Corporate America

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