Breather’s new CEO has a bold plan to compete with WeWork. In January, Bryan Murphy took the top job at the Montreal-based firm, which rents on-demand workspaces for short-term use and has over 500 locations in 10 cities globally.
On Thursday, Breather will announce plans for two new workspaces in Toronto—including an entire building, a first for the company.
Murphy spoke with The Logic about the new locations, investor pressure—Breather raised a $60-million Series C in June 2018—and his vision for how the company will grow: small spaces clustered in neighbourhoods, playing nice with landlords and declining to sell tenant data.
Despite executive turnover, Breather feels it has an advantage as more international co-working companies are moving into Toronto, North America’s most crowded real estate market. The company emphasizes a commitment to privacy and the clustering of small spaces as key differences from co-working competitors.
The seven-year-old company—which has raised $150 million in five years from investors like the Caisse de dépôt et placement du Québec and Peter Thiel’s Valar Ventures—is undergoing a period of transition. Its founding CEO Julien Smith stepped down in September 2018, saying Breather needed someone with experience scaling. In January 2019, the company found his replacement in Murphy, a former executive at eBay and founder of the direct-to-consumer mattress company Tomorrow Sleep.
“There’s always pressure to grow,” said Murphy, who added that, despite the executive turnover, Breather isn’t facing pressure from investors to reach large-scale growth. “Our investors agree with this. We’re not one of those companies willing to grow just for growth’s sake. We’ve forecasted what our growth plans are, and they’re incredibly excited about it.”
Murphy said Toronto is a key market for Breather’s growth, but the company is facing some stiff competition and a tough real estate market. Global co-working giant WeWork—which currently has 630 spaces in 103 cities—has committed to building 20 new locations in Toronto by 2020, fuelled by the US$12.8 billion it has raised to date. Amsterdam-based Spaces also plans to set up four offices in the city, ranging from 20,000 to 78,000 square feet. The expansion of international companies comes as CBRE reports that Toronto is the fastest-growing tech talent market on the continent. The city also has the lowest office vacancy rate, at 2.7 per cent in the fourth quarter of 2018.
Breather—whose customers include The Logic—has reason to believe it can grow despite the competition and the market pressure.
“Toronto has the types of customers that really benefit from the Breather offering,” said Murphy. “If you think about what we refer to as TAMI—technology, advertising, media and information-services companies—these are companies that are typically fast-growth or variable-growth.”
Murphy said Breather’s “hub-and-spoke” model separates it from co-working competition. Rather than leasing large communal spaces for multiple businesses to use simultaneously, Breather lets customers rent private offices, though it also gives them access to nearby spaces for offsites or meetings. The company launched its Offices option in October 2018, allowing firms to rent spaces for a month or longer. At the time, Breather said its 16,000 corporate clients were requesting longer terms.
Breather’s emphasis on privacy extends to how it handles data. WeWork has acquired two technology companies—Salt Lake City-based Teem and San Francisco-based Euclid—over the past year to sell analytics software to offices. The technology will let companies monitor the movements of groups of people inside their spaces, allowing them to better use their rooms; WeWork is testing it internally first.
By comparison, Dror Poleg, a real estate adviser at Breather, said the company only uses data to inform how it prices rooms and give landlords insight into demand for its spaces, and that it isn’t looking to turn the data into a product.
“We’re not rushing to install sensors; we’re very sensitive about [users’] privacy,” said Poleg.
Toronto has been a landlords’ market since 2010, with office vacancy rates steadily declining in the city. WeWork has had to relax its expectations for Toronto landlords, who balked at the suggestion that they shoulder more fees for renovations and carry the responsibility if something goes wrong in the building. Allied, which owns Breather’s new location at 425 Adelaide St. W., told The Globe and Mail last week that the latter policy has kept it from leasing to WeWork.
WeWork’s fund to acquire properties has raised over US$400 million to date. The New York-based company has expanded its global footprint rapidly, and reported on Tuesday that its losses more-than doubled in 2018 to around US$1.9 billion, even though its total revenue also doubled to about US$1.8 billion.
Breather is taking a more collaborative approach to partnering with landlords, staying in their good books. A year ago, Murphy said Breather was mostly focused on purchasing leases from landlords and then subleasing to its own customers. Now, the company works with landlords to directly share the revenue from Breather tenants, or it has landlords pay for renovations and management fees while Breather pays rent.
“We have a product that augments and improves existing buildings; it doesn’t look to take over a whole block or very large office buildings, or compete directly against other landlords,” said Poleg. “We have a business offering … with the long-term view to work with partners—not be a partner now, then set up a fund and acquire a building, like some have been doing.”
In Toronto, Breather will take over the entire building at 495 Adelaide St. W. and additional space at 425 Adelaide St. W.
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Both Adelaide locations will offer private offices and short-term workspaces. The 425 Adelaide space is owned by Allied, while Unikron owns the 495 Adelaide location—Breather’s largest space globally.
The spaces—which total 10,200 square feet combined—will open in Q2 2019. While the company has acquired the entire 495 Adelaide property, it’s nowhere near the scale of a WeWork expansion, which adds between 500,000 to 1,000,000 square feet of new space every month, according to a January 2019 CB Insights report.
Breather currently operates 65 spaces across Toronto, Montreal and Ottawa. It also has spaces in London and across six U.S. cities, including San Francisco and New York. Murphy declined to share which new markets it would be targeting, but said Breather’s focus over the next year will be on increasing its supply of spaces in existing markets. The company is hiring two account executives focused on sales in its 10 markets. It’s also hiring four Montreal-based interior designers, two of whom will be “space planning for new locations” of 1,000 to 5,000 square feet, according to the company’s jobs page.
The firm is also growing its senior team. In October 2018, Breather brought on Mark Frackt, former CFO at BuzzFeed. The company currently has two job postings up for New York-based vice-president positions—a VP of marketing and a VP of sales. Murphy said Breather has recently filled a sales lead role.