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Inside Landlord Michael Tomko’s Profitable Partnership with IWG

A recent 1851 Franchise webinar with IWG leaders shed light on how institution investors can turn their empty spaces into profitable places by tapping into the booming demand for flexible workspace solutions.

By Luca Piacentini1851 Franchise Managing Editor
SPONSOREDUpdated 1:13PM 01/12/24

With a greater need for flexibility among businesses trying to keep costs down and mitigate risk, and with workers seeking more freedom and choice in where they work, the commercial real estate industry is experiencing a fundamental shift like never before and International Workplace Group (IWG), the global flexible workspace provider, is at the forefront of this change. 

In a recent webinar, 1851 Franchise Publisher Nick Powills was joined by Michael Tomko, President of the Tomko Company who recently partnered with Regus, IWG CEO of Americas Wayne Berger and IWG Partnership Director Sean Wary, who provided valuable insights into the trends, challenges and opportunities in the market.

The Current State of Commercial Real Estate

Berger begins by providing an overview of the current state of the industry. He highlights that office vacancy rates in North America have hit record levels, surpassing 17% in the U.S. and 17.8% in Canada. These numbers reflect a significant shift in the demand for traditional office spaces. People no longer seek a fixed workspace; instead, they crave choice and flexibility in where they work. With this evolution in work culture, the global flexible workspace industry is projected to nearly double in size, from $7.97 billion to $13.03 billion, by 2025. 

As such, forward-thinking companies are adapting their office spaces to meet the changing needs of their tenants and occupants. Berger emphasizes that the current shift presents a tremendous opportunity for investors and building owners. 

The McKinsey Study: Shaping the Future

Berger emphasizes the importance of a study conducted by McKinsey, which examines the state of commercial real estate and cities as we move forward. The study underscores the growing trend of the "15 Minute City," where people prefer to live, work and access essential services in close proximity. It also suggests that it may take around 10 years to stabilize vacancy rates in the office industry.

Success Stories in Partnership Growth

IWG Partnership Director Sean Wary shares inspiring success stories, particularly focusing on the partnership growth model IWG has pioneered and perfected. As opposed to a traditional capital lease, business investors, building owners and institutional developers can sign a partnership agreement with IWG and invest the capital in converting the space into a flexible workspace office under one of their four global leading workspace brands — professional workplace brand Regus, creative workplace brand Spaces, hassle-free workplace brand HQ or luxurious workspace brand Signature. From there, IWG will presell the location, staff the team and provide partners with access to the leading workspace platform, world class technology, tried-and-tested sales and marketing engine to capture demand — everything's taken care of from fit-out to day-to-day operations and more.

IWG provides investors with operating income from day one, a higher return on net assets and increased flexibility, similar to how Airbnb has distributed residential real estate.

In the last 16 months, IWG has signed 700 partnership agreements worldwide, with 400 of them in North America. The partnership model allows IWG to rapidly add more flexible workspace locations, catering to the increasing demand for such spaces.

Michael Tomko's Journey: From Customer to Partner

Tomko, a real estate developer, narrates his journey from being a Regus customer to partnering with IWG to open a Regus center in Columbus, Ohio. Initially hesitant about the partnership model, Tomko’s perceptions changed as he recognized the potential for greater ROI and control. The partnership allowed him to offer flexible office spaces that meet the evolving demands of tenants and, consequently, attract more diverse clientele.

The Key to Success

Tomko candidly discusses the mental hurdles he had to overcome before embracing the partnership. He stressed the need for a paradigm shift and the importance of having confidence in the ROI potential of flexible workspace solutions. Being data-driven and working with knowledgeable experts, like IWG, provided him with peace of mind and allowed him to see the value of investing in this model.

Encouraging Ghosts to Step Forward

Berger addresses those sitting on the sidelines, urging them to have an open mind and explore the possibilities. The industry is undergoing significant changes, and understanding the market dynamics and opportunities is crucial. That is where partnering with the likes of IWG can be advantageous, as they are constantly tracking and monitoring emerging trends and changes. Engaging in conversations with experts can help identify the best fit for each investment portfolio.

The Appeal of Flexible Workspaces

Flexible workspaces have gained popularity for several reasons, and they present a compelling opportunity for developers:

  • Changing Work Trends: The traditional office setup is evolving as more companies adopt hybrid work models. Employees desire flexibility in their work arrangements, and businesses need agile office solutions to meet these changing demands, mitigate risk and lower costs.
  • Maximizing Occupancy: Flexible workspaces, such as IWG locations, are designed to maximize occupancy rates. These spaces cater to various businesses, from solo entrepreneurs to large enterprises, ensuring that office spaces remain occupied.
  • Local Market Understanding: Flexible workspace providers, like IWG, have a deep understanding of local markets, which are increasingly dynamic. They can leverage this knowledge to optimize space usage and tailor services to meet the unique demands of each location.

The Benefits of Partnering with a Leading Provider

Tomko’s experience with Regus showcases the advantages of partnering with an established and reputable flexible workspace provider like IWG:

  • Shared Expertise: When partnering with a leading provider like IWG, you gain access to a wealth of industry expertise and best practices spanning over 30 years. This can help streamline the development process and avoid unexpected challenges. IWG has a team for design, construction, sales and everything needed to build, operate and launch a successful new flexible workspace.
  • Marketing and Visibility: Established providers like IWG have robust marketing strategies that promote new centers and attract clients efficiently. Their global network also facilitates cross-location visibility, leading to increased exposure for each center. Among IWG’s global customer base are 83% of Fortune 500 companies, who benefit from giving their millions of workers access to IWG’s unparalleled network of workspaces.  
  • Flexible Lease Terms: Flexible workspace agreements typically have shorter lease terms compared to conventional leases. This flexibility allows you to adapt to market changes and explore other opportunities if necessary. 

Realizing Revenue Growth with Flexible Workspaces

Tomko’s Regus center experienced revenue growth beyond initial expectations, demonstrating the potential of flexible workspaces:

  • Faster Revenue Generation: With shorter lease terms and quick build-out timelines, revenue generation from flexible workspaces can be faster compared to conventional office leasing. IWG assigns a project coordinator to ensure a smooth process from start to finish, aiming to open new flexible workspace centers within 8 to 12 weeks of signing on.
  • Higher Returns: By offering premium services and optimizing space usage, the revenue potential of flexible workspaces can exceed that of traditional office leasing.
  • Diversification of Revenue Streams: In addition to traditional office space leasing, flexible workspaces can provide revenue from various sources, such as virtual offices and meeting room rentals. IWG incorporates 106 different revenue streams into every location. Virtual offices now represent around 30% of IWG's total revenue and continue to expand as more partners join the network.

Overcoming Fears and Making the Leap

If you are contemplating whether to venture into the flexible workspace market, here are some key points to consider:

  • Market Dynamics: While there might be pessimism around office spaces, it is essential to understand the changing work trends and the desire for flexible workspaces in the market.
  • Partnering with Experts: Aligning with an experienced flexible workspace provider, like IWG, can help mitigate risks and ensure success through their market knowledge and support. It can also make capitalizing on the opportunity quicker and easier because everything is taken care of.
  • Opportunity in Transformation: Embracing the transformation in the office space market presents an opportunity for developers to reinvest, revitalize existing spaces and meet the evolving needs of modern businesses.

Overall, the industry is witnessing transformative changes, and those who embrace flexibility and adaptability are likely to reap significant benefits. As office spaces evolve to meet the needs of modern workers, partnering with experienced and knowledgeable providers like IWG presents a mutually beneficial opportunity for success.

Watch the full conversation here

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