As speculation and media reports of a potential WeWork bankruptcy swirled Monday, coworking rival IWG said it plans an aggressive global expansion to double down on the flexible workspace model.
That could include snapping up more former WeWork spaces in large cities, founder and CEO Mark Dixon told CoStar News in an interview. His comments came soon after trading of WeWork shares was halted amid speculation that a bankruptcy filing was imminent. Hours later, WeWork said it filed for bankruptcy.
“We have taken over quite a few defunct WeWorks and maybe there will be more of those to come,” Dixon said. “It’s early days and let’s see what their actual announcement says. We think we know, but we don’t know.”
London is among the cities where IWG already has claimed multiple former WeWork spaces.
Potential availability of a new wave of WeWork spaces is just one of the ways IWG could expand, Dixon said, to meet what his company projects will be a continued increase in demand as remote and hybrid work remains widespread and major corporations put off long-term real estate decisions.
“There’s loads of opportunities, and we’re absolutely focused on it,” Dixon said.
IWG, the parent company of coworking brands such as Regus, Spaces, HQ and Signature, said it is in the process of adding about 1,000 locations throughout the world over a one-year period. The Switzerland-based company now has 4,000 locations across 120 countries.
Dixon started IWG, previously known as Regus Group, in 1989.
To grow, IWG will have to overcome broader real estate challenges. Those include big office properties falling into financial distress, which means flexible space providers must carefully choose partners when investing heavily in new sites. Affiliates have been through bankruptcy twice, in 2003 and later in 2020 for a small percentage of its U.S. portfolio during the COVID-19 pandemic.
Few Long-Term Leases
IWG’s ongoing expansion has mostly been through management agreements with landlords, rather than making long-term lease commitments. Long-term leases at high rents are one of several problems industry professionals have pointed to as WeWork’s onetime $16 billion valuation dwindles.
“It has to be quite a big thing to lose $16 billion in cash,” Dixon said. “It’s got to be a big problem, doesn’t it? I don’t want to speculate on that because I’m not an expert in losing money. Overall, it’s a combination of problems.”
Dixon said WeWork’s struggles have overshadowed what he views as an otherwise bright future for flexible workspace.
The company’s ongoing expansion, which included more than 300 new locations in the United States and more than 600 globally through the first three quarters of this year, has included a big focus on suburban and rural locations.
That is because Dixon said about half of IWG’s members use more than one of the company’s locations in any week, sometimes staying close to home but other times commuting to major city centers in places like New York, Chicago and San Francisco — a few examples of cities where Dixon said IWG wants to keep adding downtown locations. Some of those could be former locations of WeWork, which has focused on large, high-quality spaces in city centers.
New York-based WeWork’s struggles have driven talk about whether workers will return to downtown offices, Dixon said, distracting from what he believes is a lasting shift toward employees floating among multiple offices.
“This company, unfortunately, is sort of blaming their problems on something to do with whether people go back to work or don’t go back to work, which has absolutely nothing to do with it,” Dixon said of WeWork. “It will hopefully get out of the way, and we’ll have a proper conversation, a proper narrative about how companies are changing the way they support people, which is much more the narrative that needs to be had.
“There will be a big kerfuffle as [a WeWork bankruptcy] happens, but then afterwards you’ll get back to some sort of normality and the real story comes through.”
Dixon describes IWG’s platform as “a continuum” that allows members to switch locations daily while using the same membership.
“We’re up to 150 sites or more in New Jersey, but lots of people in Jersey will go into New York City,” Dixon said. “It’s not one or the other. The whole idea is, you use the platform, you don’t use just one place.”
IWG has gotten creative in recent years, converting real estate in places like shopping malls into coworking offices. IWG has been setting up smaller spaces in places such as Plymouth, Massachusetts; Carmel, Indiana; and Castle Rock, Colorado, to serve as spokes feeding into bigger downtown offices.
Economic Uncertainty
Flexible space will continue to be in demand, even as many traditional office landlords face financial distress from historically low demand nearly four years since the onset of COVID-19, Dixon said.
Fortune 500 companies are putting off real estate decisions as they weigh a variety of factors, including conflicts in Ukraine and the Middle East, rising interest rates and other economic uncertainties, Dixon said.
“They’re very focused on cost and they see 2024 and the foreseeable future as being very tough economic years for most companies, so they’re very focused on controlling costs,” Dixon said of corporate executives.
“They’re finding it difficult to call the future,” Dixon said. “They don’t know. They never know, but I think they’re finding it even more difficult as they go into an election year in the U.S. and there’s a lot of volatility, clearly, with unprecedented geopolitical problems around the world. It’s a very uncertain time if you’re running a larger corporation. They want flexibility, they want to cut costs, and that’s where we come in. We’re doing unprecedented business with new corporations on that very basis.”
Some corporate clients that started with deals for as little as one year in a building have remained in locations for a decade or more after signing several extensions as they maintain flexibility, Dixon said.
When corporate staff cuts occur, some out-of-work employees form new companies that need work space, Dixon said. That is expected to drive the growth of lower-cost IWG brands that serve startups and other small companies, such as OpenOffice, Dixon said.
“The fact that we’ve got so many brands allows us to do a lot more of a range of buildings and locations to extend the growth and the choice for customers,” Dixon said.