The purchase by commercial property services firm CBRE of the remaining stake it didn't already own in Industrious is seen in the industry as an endorsement of the coworking company's business model of profit-sharing with landlords.
The practice includes leases that can pay the landlord more rent based on higher numbers of coworking clients filling Industrious' spaces. The business model, seen as less risky for coworking companies compared to traditional office leases, has been adopted by Industrious rival WeWork, a flexible space provider that acquired Common Desk nearly three years ago. The strategy is also a driving force luring the ownership of Dallas-based CBRE as it diversifies beyond its role as the world's largest commercial real estate brokerage, according to commercial real estate professionals.
The model is "more asset light than traditional leases, but it's all subjective," Giovanni Palavicini, co-president of the Global Workspace Association as well as head and founder of commercial real estate firm Fronteras, told CoStar News. This type of profit-sharing is similar to retail and restaurant leases, where the landlord benefits from the tenant's success, said Palavicini, who previously served as principal for Avison Young's flexible office solutions team.
CBRE announced Tuesday it is buying the remaining stake in Industrious in a roughly $400 million deal, placing the total valuation of the flexible office provider at about $800 million. New York City-based Industrious has about 200 locations in more than 65 cities worldwide.
Industrious is a high-end flexible office brand on the basis of its "strong growth, unit economics and asset-light business model," CBRE's chair and CEO, Bob Sulentic, said in a statement sent to CoStar News.
The first investment by CBRE in Industrious came in 2020; that commitment was later expanded in 2022 with $100 million earmarked for new European locations in Berlin, Munich, Amsterdam and Dublin, as well as further east in Sydney and Tokyo. CBRE has been on a path of diversifying its businesses.
"CBRE believes strongly in flex workplace, which motivated our initial investment," Sulentic said.
The recent acquisition solidifies the standing of the three biggest coworking companies — Industrious, IWG and WeWork — at a time when hybrid work has created ongoing demand for flexible office space, said Robert Shibuya, CEO of Mohr Partners, a commercial real estate brokerage based in Dallas. Shibuya, who keeps tabs on what other real estate services firms are offering clients, expects even more consolidation in the coworking industry.
"Even though some companies like JPMorgan have told employees they need to come back to the office five days a week, I think the new normal, from what I've seen, on average is two days remote work with three days in the office," Shibuya told CoStar News. "It makes sense to shy away from a direct lease with a landlord and pay a premium with flexibility of occupying a coworking space like a WeWork or Industrious."
This isn't the first time CBRE has acquired a business gradually. As it did with Industrious, the firm initially took a stake in its Turner & Townsend project management business before committing to fully acquiring the U.K.-based company earlier this month. This strategy could signal more of the same as CBRE diversifies, Shibuya said.
New unit
The deal, which is expected to close by month's end, paves the way for CBRE to add a new unit to its business: Building Operations & Experience that combines Industrious with CBRE's property and facilities management businesses.
Industrious' co-founder and CEO, Jamie Hodari, is tasked with overseeing the new business unit that spans more than 7 billion square feet of property across the globe.
Hodari's new role as CEO of the business unit and chief commercial officer will also include data centers, complex distribution centers, healthcare facilities and manufacturing plants.
The Building Operations & Experience unit can provide back-office support, building technical engineering and procurement services under one roof, CBRE's Sulentic said.
"Industrious adds flex product and experience capabilities to our offering, which are particularly attractive for investor-owned office buildings and occupier-owned office uses," he added.