Merge, a 50-person San Francisco startup that integrates human resources and administrative software, is a bit of a unicorn.
Not in the sense that the company has reached a $1 billion valuation—though they did announce a $15 million funding round in November—but rather that they’re requiring employees to come in five days a week in both their San Francisco and New York locations.
It’s a bit of a tough sell in the current environment, but for a startup founded three months into the pandemic, its founders say in-person work has been vital to the communication and fast experimentation necessary for getting the company off the ground.
“It’s become a part of us, and part of what makes us unique,” said co-founder and CEO Gil Feig.
When Merge started bringing employees on board, the company leased a WeWork space near the Embarcadero that allowed them to work socially distanced and with masks. Later, the company moved to WeWork’s Salesforce Tower location, which has allowed for successively larger spaces as Merge has grown. WeWork operates 14 properties in San Francisco.
“A traditional office move is a nightmare; it takes like six months,” said Feig at a meeting at the company’s offices, which offer panoramic views of the Bay. Plus, Feig added, it would have been otherwise impossible to afford space in a premier building like Salesforce Tower as a small startup.
WeWork and other providers of flexible office space have emerged as an unexpected beneficiary of a slow return to offices and broader volatility affecting local tech firms.
According to Elton Kwok, a vice president at WeWork, the goal is not to replace traditional office space but rather to attract companies that could use a flexible real estate portfolio. Right now, with startups juggling investor demands to cut costs and make progress on profitability, there’s ample opportunity.
“I think uncertainty fuels growth for us,” Kwok said. During the pandemic, the company—which had canceled a planned IPO just months earlier—relaunched its all-access membership program, among other products.
Kwok said that despite San Francisco’s unusually low return to office numbers, three of the city’s WeWork locations rank in the top 10 for all-access and on-demand bookings in the U.S.
And while WeWork represents only 1% of the total office space in San Francisco, it accounted for 17% of total leasing activity in 2021.
Marty Long, director of real estate and strategy for Industrious, a national coworking brand that has three locations in San Francisco, said the company has seen more than a year of month-over-month improvement. He’s bullish on the ability of flexible office models to thrive even if many local office workers continue to stay home.
“It seems to be a growing part of the pie, even if the pie itself is slightly shrinking,” Long said.
While coworking itself is not a novel invention, what is new is a greater willingness by large corporations to explore the model, said Colin Yasukochi, executive director of the CBRE Tech Insights Center. And the flexibility runs both ways, with landlords more “willing to negotiate with tenants of all types moreso than they were pre-pandemic,” he said.
Traditional real estate operators are also looking for a piece of the flexible office trend. CBRE, for example, has invested $300 million in Industrious, citing a survey that found 59% of office occupants plan to make flexible office space a “significant portion” of their portfolio over the next two years.
Ali Elyassi, vice president of sales and marketing at San Francisco coworking company Werqwise, said that the past three months have brought an uptick from the depths of the pandemic, when it struggled to fill space. While occupancy still hasn’t fully recovered, Elyassi said the most interest is from startups looking for small offices and spaces for meetings and trainings.
“It indicates that they’re getting their act together in terms of building in-person connections, or even just to shake hands with VCs,” Elyassi said. “What I see is people trying to get back in the game.”Kevin Truong can be reached at [email protected].