Global flexible workplace provider IWG has made headlines recently, for a mixture of positive and negative indicators. Many of the subsidiaries under its umbrella, including the well-known Regus brand, have had to close locations due to a drop in office demand from COVID-19. But, even with the current headwinds, the company has an ambitious trajectory to take their current number of workspaces from about 3,500 to as many as 50,000. While flexible workspace providers have been struggling to adapt as more people are forced to work from home and social distance, this trend could actually work to the advantage of providers once the virus is under control.
The reality is that, even after we have a widely distributed vaccine, some people will want to continue to work from home full-time and others will want to go back to the office. Going forward, companies will need to adjust to remote work policies and accommodate more flexible work routines that allow workers to choose where they work from. IWG and other workspace providers are banking on this transition to flexible work needs, including remote work policies and hub and spoke models that allow employees to work from satellite offices of their choice.
I spoke with Ian Hallett, IWG’s Group Managing Director who is responsible for leading the transformation of IWG towards a multi-brand, multi-product business, across over 115 countries. The company is in a unique position to make this happen, since unlike its competitors, IWG controls a wide range of brands, like Regus, Spaces, HQ, and Basepoint, each of which has a particular market niche and identity. This approach comes with some benefits that we discuss in our newest research report, which looks at IWG as a whole through a strategic lens.
While IWG may run many brands, it is still just one company. Hallett said, “If you take the total worldwide market of office space, the version that we do, the managed service version, is only two percent of the total market. It was already predicted to grow to 30 percent in the next ten years by JLL. So there was always a big shift in the way that clients, customers, companies using office space are shifting from traditional leases towards flexible service contracts with companies like us.”
Part of this shift includes the need to accommodate a distributed workforce. Many companies will need to rely on national or even global workspace providers that offer locations virtually anywhere an employee may choose to live. This approach to human resources enables companies to hire the best possible candidate for each position regardless of location.
In order to meet their goal of having at least one location in every major city across the globe, IWG uses a franchise business model, allowing their work spaces to be easily replicated through streamlined processes (including safety protocols for COVID-19). “We raised just over 300 million pounds [$395 million] about three or four months ago as growth capital. We have a very significant franchising program underway to help us grow even faster,” explained Hallett. For IWG, even in the current climate, expansion plans are full-steam ahead.
By relying on a franchise model, IWG hopes to make it easy for partners to replicate centers and begin operations quickly. According to Hallett, IWG provides a platform for their franchise partners to use that includes everything needed to open and run a center. From branding and marketing to products and supply chains, the goal is to make opening and running a center for IWG as easy as opening and running a McDonald’s restaurant (one of the most successful franchises of all time). Hallett said, “We’re signing franchises every month. Still, even through the worst periods of this current crisis, we’ve been signing new franchises.” The fact that the company has continued opening franchises even during the pandemic could be an indicator of the franchise model’s success and outlook for the future.
However, it’s important to note that at the same time as these new franchise signings were happening, various locations were also closing. In early October, it was reported that IWG was looking to close 20 percent of its flex office portfolio in New York City. Similarly, in the U.S., IWG’s Regus (RGN Holdings) filed for bankruptcy protection after numerous individual locations had filed. It’s no secret that tenants of all kinds, from retail to flex office providers to hotels, are all seeking rent reductions and some have had to file for bankruptcy as a result. The question remains as to how these closures will impact growth trajectories for the company.
While it’s clear that IWG holds a larger piece of the flex office market than its competitors (like WeWork), will it continue to maintain that lead? The future of flexible work space providers depends on the public’s ability to return to the office in some capacity. While many companies might be shrinking their office footprint, we could see the changes that we have made in the way we work due to the pandemic drive more organizations to managed spaces. If this happens then flexible workplaces, including the brands owned by IWG, will likely benefit.