Landlords Willing to Evolve Will Play a Critical Role in Supporting a New Form of Office Culture — Remote and Flexible

International Workplace Group (IWG) is a flexible workspace solution that has been operating for over three decades, with a footprint that includes 1,200 open locations across North America. Now, as organizations increasingly adopt a hybrid approach to working, in which employees spend a few days at home and a few days in an office, the flexible workspace industry is exploding in popularity, and everyone from commercial landlords to institutional investors to franchisees have an opportunity to take advantage by partnering with IWG.

“The workforce has made it clear they desire flexibility. They have also made it clear that they still want an office culture,” said Wayne Berger, CEO of IWG, The Americas. “This may seem like asking too much, but in fact, it isn’t. Every time we open a flexible workspace, we open a new opportunity to appease these employees. Employers can eliminate or greatly reduce the commute and give their employees another option away from the home by leveraging these spaces.”

Rather than simply working from home or the office, more and more employees are expressing a desire for a third option — a hub-and-spoke model where they go to a flexible workspace every day in their local communities. 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. 

A Transformation in the Landlord Mindset

As the world shifts post-COVID to a hybrid working model, it isn’t just the employees and the employers who need to adapt; it is also the landlords of office spaces. 

“We are seeing vacancy rates increase in major markets across the world, and we are also seeing sublease vacancies accelerating as well,” said Berger. “There are also many organizations with properties on lease that are just sitting empty because employees haven’t come back following the pandemic.”

Landlords with commercial office space traditionally rely on long-term capital leases to maintain their businesses. These leases can run for 10 years or longer. But with remote and hybrid work on the rise and the culture of work rapidly evolving, many employers are downsizing or eliminating their brick-and-mortar office space altogether. Many landlords struggle to identify tenants willing to commit to long-term leases to fill current or upcoming vacancies.

“Many organizations are choosing to reduce their traditional office space and instead allow employees to work across multiple locations through a hub-and-spoke model,” said Berger. “Flexible working isn’t working from home — it is working closer to home, eliminating the commute. That is forcing organizations to look at their real estate portfolio differently. We are moving away from the 10 to 15-year lease, and building owners need to look and determine their plan for their space moving forward.” 

Why Landlords Need to Pay Attention to How the World is Changing

In order to avoid getting left behind, landlords, institutional investors and building owners need to pivot, Berger says. “We’ve all heard of The Great Recession — workers have more power than ever before,” he said. “Some people are wondering whether that will shift if we go into a recession and there is higher unemployment. But everything that we are seeing today shows that flexibility isn’t going away. Even the most traditional sectors have instituted flexible policies for their people.”

And going back to the way things were just isn’t tenable for many companies, Berger says, especially considering so many organizations are more geographically diverse than ever before. “The idea that culture can only be built between four walls is misguided,” he said. “Great culture comes from great leaders who know how to align great people on their goals, and that can be done in a virtual way. That is great news for organizations because it opens up the talent pool.”

With this, Berger says there is a massive opportunity to launch and activate flexible workspaces in places where people need to have them. “Many building owners are going to be faced with a tough decision — either convert how they drive income in the building or convert the building to a different asset class, which requires significant investment and isn’t very reasonable,” he said. “There is going to be a large subset of space that is going to be sitting waiting for a tenant that is no longer arriving, especially if it is a B or C class building in a B or C class market. That is where we can come in and really solve a problem for these landlords.”

And as more and more organizations shift their real estate portfolio towards flexible workspaces, Berger says landlords have an opportunity to play a critical role in changing the world for the better. For example, the 15-Minute City concept, which was coined by a professor at the University of Paris, is the idea of having everything residents need for work and leisure — shops, offices, amenities, and entertainment — accessible within a 15-minute bike ride from their home.

“The goal is to provide a better lifestyle for people, and that has become a key driver as to where people choose to work,” said Berger. “Flexible working is better for people, better for profits and better for the planet. People can work how they want to work, organizations can raise profit by rationalizing their commercial real estate portfolio, and the planet benefits because cutting down on commutes is a very powerful way to reduce CO2 emissions and achieve sustainable goals. It is really simple, but the only way to achieve it is to have a great network of flexible workspaces that are also convenient.”

How IWG Helps Landlords with a Solution

By partnering with IWG, commercial landlords and institutional investors in markets both large and small have an opportunity to cater to the demand for flexible workspaces and shorter leases. 

As opposed to a traditional capital lease, landlords, 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 — 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, deploy the resources and place it on the world's largest network of flexible workspace sites. 

“We are a solution for the hundreds of building owners we work with across the globe,” said Berger. “We sign a partnership agreement with the building owner, they pay a fee, and we activate the location, connect it to our robust network, and set up the I.T. infrastructure and manage it with our best-in-class team. It is a passive investment — once the building owner pays our fee, the rest of the profit is theirs.”

This provides landlords and business 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.

“We walk them through a layout of what a best-in-class flex space should look like,” said Berger. “We've been doing this for 33 years, so we've learned from the failures and successes of creating the perfect operating and hospitality business. It seems simple, but it's not. It's really important to design the space correctly for monetization with multiple revenue streams while also making sure everyone has a great experience from the moment they walk in the door.”

From there, IWG has a team for design, construction, sales, marketing, and everything needed to build, operate and launch a successful new flexible workspace. “Our goal is to work together with building owners to find the right model for them and demonstrate how and why flexible working is going to be a driving force in their portfolio,” said Berger.

Looking ahead, IWG is currently seeking landlord partners in key markets across North America as it aims to add 1,000 locations per year on its way to 10,000 total units. The brand is targeting landlords that own either a single building or a small portfolio of buildings, have an entrepreneurial spirit and perhaps most of all, share IWG’s belief that remote work is here to stay and understand that flexibility truly is the future.

“I emphatically believe that the flexible workspace industry is going to achieve, if not exceed, its projected growth by 2030,” said Berger. “In 2021, for the first time in 30 years, employee well-being and flexible working became the number one demand driver for workers, exceeding salary and bonuses. What that says is there is a systemic shift in how people are choosing to work. As a result, companies are shifting so dynamically, so quickly, that 10-year traditional leases no longer make sense. That is why we're seeing incredible interest from investors who are looking to diversify away from traditional industries and taking note of our subscription-based business.”

Learn more at iwgplc.com/develop-a-location.