Flexible workspaces shift to suburbs as IWG outpaces WeWork

Flexible office spaces have evolved from WeWork's party-like atmosphere to essential suburban hubs, thanks to the rise of hybrid work. While WeWork's bankruptcy reshaped the industry, IWG Plc, with its brands like Regus and Spaces, has quietly outpaced rivals in growth. Focusing on commuter towns, IWG capitalizes on the shift from city centres to local offices. Yet, despite its resilience, the future of coworking remains uncertain..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Justin Fox.What is flexible office space for? In the heyday of WeWork Inc., the answer seemed to be a big party. WeWork's high-design, amenity-filled urban spaces were places for like-minded young entrepreneurs and freelancers to gather — a more work-focused rival to membership club chain Soho House & Co Inc., as my Bloomberg Opinion colleague Chris Bryant described it in 2018. .___STEADY_PAYWALL___.Read more: A workplace shift: Office redesign, mental wellness and the growing preference for office return – Anne Rutledge.After the pandemic and the November 2023 bankruptcy of WeWork, this approach is having a big influence on how large companies reconfigure their offices in an attempt to persuade employees to spend more time there. But coworking spaces, serviced offices, virtual offices and other variations on the flexible workspace theme seem to have moved on. With hybrid work the new norm, the industry is betting on sedate suburban and small-town locations where employees of big companies and other knowledge workers can escape their basements and guest bedrooms without having to endure long commutes..By "the industry," what I mean is mainly just Switzerland-based, London-listed IWG Plc, which stands for International Workplace Group and operates the brands Regus, HQ and Spaces, among others. During WeWork's meteoric rise, IWG was the dumpy also-ran trotted out as either a reality check for WeWork's staggering valuations or an example of a missed opportunity. Now it still has a market capitalization in the billions of dollars while WeWork … doesn't..IWG also now has so many more locations than WeWork and other rivals that it seems to be playing an entirely different game. Here are the latest numbers for the US as compiled by Coworking Cafe, a division of real estate software provider Yardi Systems Inc. — which coincidentally is set to be WeWork's majority owner when the latter emerges from bankruptcy protection, probably later this month. They also show that IWG's brands are responsible for almost all of the industry's current growth..The international picture is similar, with IWG reporting in its annual accounts presentation in March that it had 3,514 locations worldwide to about 500 for WeWork, 160 for New York-based Industrious and 150 for Sydney-based Servcorp Ltd. Many of these locations are small and relatively low-rent — pre-bankruptcy, WeWork had similar revenue to IWG along with vastly higher operating expenses. But that's sort of the point as IWG turns its attention to suburbs, exurbs and even resort areas that have attracted remote workers. New locations in the US include Bluffton, South Carolina, near Hilton Head Island; Kodak, Tennessee, in the Smoky Mountains; Destin, a beach town on the Florida Panhandle; Middleton, Wisconsin, a suburb of Madison; Ridgeland, Mississippi, a suburb of Jackson; and the Washington exurb of Stafford, Virginia.."Thousands are changing their working habits, shifting from daily trips to crowded, distant city centres to working primarily in the commuter towns they call home, with only occasional visits to city centre offices," IWG founder and Chief Executive Officer Mark Dixon wrote in the foreword to a new report on "The Commuter Town Boom" prepared by his company and the engineering and design firm Arup Group. "In some areas, the increase could be as high as 175%, which will require a substantial increase in the amount of high-quality office space available in towns that have previously had relatively low numbers of locally based white-collar workers.".It's a compelling story, although coworking entrepreneurs have been telling compelling stories for some time while building businesses that are at best moderate successes. Alf Moufarrige, who founded Servcorp in Sydney in 1978 and is still the company's CEO, was the first. Dixon started Regus (the holding company name was changed to IWG in 2016) in Brussels in 1989 and took it public in the waning days of the dot-com bubble in 2000. Then came WeWork's Adam Neumann, who truly did transform the office landscape for a time but only by burning through billions in investors' money..The pesky reality is that acquiring, fitting out and maintaining office space is expensive, capital-intensive work, and if you're offering tenants flexibility, you lose revenue much more quickly in a downturn than traditional office landlords with long-term leases. IWG reported a net loss of £647 million ($830 million) in 2020 as Covid-19 emptied offices, and many of its individual properties filed for bankruptcy protection..The company has since experienced a strong revenue recovery but has yet to climb out of the red. Its total shareholder return since just before the pandemic has been worse than that of the top public traded US office developer, Boston Properties Inc. — and both have of course performed terribly relative to the broader stock market..IWG is now considering shifting to a US exchange in hopes that this would attract more investor interest and playing up the growing share of "capital-light" properties that it manages for other owners. It's a business that has survived through good times and bad and surely has a future. But is it the future? Don't be too sure about that..Read also:.How Zoom hopes to approach physical officesFlexible offices set to account for 30% of all offices, say commercial brokersFlexible offices set to account for 30% of all offices, say commercial brokers.© 2024 Bloomberg L.P.

Flexible workspaces shift to suburbs as IWG outpaces WeWork

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