Coworking CEO Says Business Model 'Never Made Sense,' Closes All Locations

Flexible workspace operator Breather is no longer in the real estate business.

The startup plans to close all of its locations, totaling more than 400 across the U.S., Canada and the U.K., The Globe and Mail reports, and has laid off a large majority of its staff, Commercial Observer reports. The Montreal-based company has appointed a third party to negotiate office closure and lease terminations with landlords.

For now, Breather plans to remain a going concern by using its online platform to help workers and companies find space in other coworking locations. Though he pinned the majority of the blame for Breather's woes on the coronavirus pandemic in an interview with The Globe and Mail, CEO Bryan Murphy also disavowed the company's business model.

“The decision I’ve made is that Breather, in its current form as an operator, doesn’t make sense, and, to be frank, I’m not sure it ever made sense,” Murphy told The Globe and Mail. “I want to be like Airbnb.”

Breather's app had already operated similarly to Airbnb, with users able to book private space at any Breather location for any length of time with a pay-as-you-go-model.

As recently as July, Murphy said that the company's system was perfectly suited to how office tenants have responded to pandemic conditions and that it was hiring more employees again. Breather had furloughed most of its staffers in spring before bringing them back gradually in the summer months.

"We’ve seen companies leave the permanent office altogether,” Murphy told Bisnow in July. “They don’t need an office until they need it: team meetings, client meetings, board meetings. And then, they’re finding they can book on-demand."

By October, Murphy was trying to pivot. Breather added a monthly membership model to its offerings that was not tied to any single location, and in November hired investment bank Moelis & Co. to explore a sale of the company or another capital raise, CO reports. Neither option garnered much interest.

Breather is the latest flexible workspace provider that has seen its long-term prospects crumble this year. Serendipity Labs filed for Chapter 11 bankruptcy in July, though its locations are operated through franchise agreements and are not part of the restructuring process.

Knotel has laid off more than half of its staff, sought to give back properties and has been sued by multiple landlords for nonpayment of rent in New York, much like Breather has. Industrious has also been sued for nonpayment of rent in Chicago this year. Industrious told Bisnow the suit is for a shuttered location under litigation and its other eight locations in the city are current.

Competitor WeWork, the biggest brand name in coworking, has stayed afloat thanks to a takeover by SoftBank Group, which had been its largest investor for years. Weeks before Murphy claimed Breather's business model "never made sense," WeWork took a New York pilot of a similar program nationwide.

WeWork On Demand, which officially launched in November, allows individuals or companies to sign up for space at its locations for a day with no membership fees. It also has a higher tier for companies that wish to do the same called WeWork All Access, though All Access does require monthly fees.

CORRECTION, DEC. 18, 11:05 A.M. ET: A previous version of this article misstated when Serendipity Labs filed for Chapter 11 and did not specify the nature of the lawsuit against Industrious. This article has been updated.