Real Estate

Cautious Property Firms Put The Brakes On Rapid Growth

No longer charging into market spaces (no matter the cost), many real estate startups are now slowing their growth to more carefully assess a better strategy moving forward.

WeWork significantly altered course after losing money, shedding employees because it grew too fast and concerned shareholders. Real estate broker Compass and flexible-office company Knotel both slowed expansion recently as well. OYO, a hotel company, will also slow growth and lay off some employees as it re-evaluates its next steps.

“Growing at the pace at which OYO has in the past few years, we sometimes went ahead of ourselves,” said CEO Ritesh Agarwal to his staff. “This year, we are taking steps to address this.”

Traditional Silicon Valley startups accelerate through cash to achieve rapid expansion, with the goal of easier profitability once a certain market size has been secured. That strategy has not worked for companies that utilize or need actual physical space, such as in the real estate and hospitality sectors.

Jamie Hodari, CEO of co-working company Industrious, said it is a challenge to focus on profitability when potential backers demand rapid growth above all. “It’s hard to stand your ground. It’s hard to stick by your convictions about what the right thing for your business is when these incredibly wealthy, incredibly experienced people are telling you something otherwise,” he said.

Francis Davidson, CEO of apartment leasing company Sonder, said in an interview that while the company is still growing, faster expansion “is less of a thing for us going forward” — partly, because its competitors aren’t expanding as quickly, either, so the need for acceleration is less. Sonder closed 100 units in Boston last year after city regulations were modified, impacting its business model.

Despite the industry slowdown, online real estate companies can still secure significant financing, as people will always need real estate.

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