Why Building Owners are Choosing to Partner with IWG

International Workplace Group (IWG), the 3,300-location flexible workspace global powerhouse parent of Regus, a professional workplace brand; Spaces, a creative workplace brand; HQ, a hassle-free workplace brand; and Signature, a luxurious workspace brand, has continued to see tremendous growth over the past year. As more and more organizations look for shorter-term leases, the worldwide flexible workspace leader has added hundreds of new locations via strategic partnerships with landlords and building owners to its partner network.

In a recent webinar, 1851 Franchise Publisher Nick Powills spoke with IWG CEO of the Americas Wayne Berger and Charlie Dercks, who recently partnered with IWG to open a Regus location in Wisconsin, to discuss why Dercks chose to partner with them, what the process has been like, the support IWG offers investment partners and what the future holds.

Charlie Dercks' Journey with IWG

Dercks is one of the 500 new investment partners who have joined the IWG network over the past year. Dercks is a real estate investment specialist at J. Ross & Associates. His primary focus is in sourcing acquisitions, underwriting, due diligence management and arranging financing on investments. His expertise includes asset and portfolio management as well as construction project management.

As a real estate developer and building owner in Wisconsin, Dercks decided to explore flexible workspaces after struggling to secure a lease for a vacant property. He was attracted to the opportunity for diversification and the alignment of his property's location with IWG's structure.

“We had a vacant space in a project that is around 100,000-square-feet,” Dercks said. “There was interest in that space from different users, but after six to nine months of not getting a lease to come to fruition, we decided to take a look at the flexible workspace. We believe that the office sector is going through a big shift in the post-COVID world and those changes are here to stay.”

Partnering with IWG, Dercks recently opened a Regus location in the suburbs of Milwaukee. Dercks highlighted the importance of considering costs and the opportunity for diversification when deciding to partner with IWG.

“We are still in the early stages, but in the first quarter we are already further ahead than what we expected,” said Dercks. “We’ve already hit 25% occupancy in the first quarter and expect to hit 75% occupancy by the end of the year. I believe we are heading on the right path and the right direction.”

A Changing Landscape in Commercial Real Estate

Berger highlighted the unparalleled structural shift in the commercial real estate industry as more companies and individuals seek flexible workspaces. IWG has seen a 40% increase in demand for flexible workspaces over the past year and vacancy rates in the U.S. have reached a record 16.5%.

"More people and companies are becoming less reliant on the conventional lease workspace, and more focused on ensuring that people have a brilliant place to work as simply as accessing an app,” Berger said. “If you look at the state of the office commercial real estate world, there are two words that come to my mind: distress and opportunity. We are seeing the single largest structural shift in how, when, where, what and why people call work. It has become critical for organizations to give people the ability to work closer to their home and fellow team members. As a result of the move to hybrid working, companies are seeing dramatic savings and alleviating a capital cost liability in relation to a lease and keeping up a workspace.”

By taking a portion of their commercial real estate portfolio and transforming it into an IWG flexible workspace, building owners and business investors like Dercks have an exciting opportunity to get ahead of a seismic shift in the commercial real estate industry, drive operating income from day one and turn empty building space into profitable revenue.

“These partnerships help building owners generate revenue, monetize their spaces and offer their clients a more fluid way to access workspaces,” Berger said.

Support from IWG for New Partners

IWG provides comprehensive support to its partners like Dercks, including dedicated construction and design managers with extensive experience in building flexible workspaces. 

“It is such a dynamic environment right now when you think about what we are still working through with supply chain gaps, labor shortages, etc,” Berger said. “We work with all of our partners to determine a construction model. What is the state of the space? How much will it cost to turn that space into a true flexible workspace location? It is amazing how fluid it can be — some of our partners are new to construction, while others have a deep level of engagement in construction.”

Every owner like Charlie can be confident they have an IWG veteran project manager behind them. “They are there to support value engineering, the floorplan, the build out, etc — we want to make sure our partners have access to all of our global suppliers. That way, they can leverage savings that may not be available for one-off operators,” said Berger.

IWG also 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.

“That coordinator is there to track every single detail and ensure that the project continues to move forward as fast as possible,” said Berger. “We want to drive as much immediate cash flow to a building owner’s location. We want to open with a brilliant space, start bringing in income as the center matures and ultimately drive a premium over a gross rent.”

Tools and Amenities: IWG's New Center Starter Kit

To simplify and streamline the process of launching a flexible workspace for investors like Dercks, IWG has developed the New Center Starter Kit. This all-in-one package includes everything needed to set up a new location, eliminating the need for partners to deal with multiple vendors. 

"You don’t have to talk to 16 different vendors to figure this out, you can get it open and start driving revenue,” Berger said. “When you are building, launching and deploying a flexible workspace location, there is one side that is all about the actual build out work, but there is a whole other side about tools, equipment, amenities and consumables. Before, we were tasking our owners with finding the location and finding the coffee beans, for example. That was too much work. Now, we are trying to make it as simple and cost-effective as possible to launch a flexible workspace.”

The Growing Importance of Virtual Offices

Berger emphasized the increasing popularity of virtual offices, with demand still growing even after the COVID-19 pandemic. 

“We thought that virtual offices would start to slow down, but it is still growing at a point a month,” said Berger. “More and more companies are leaning on having virtual offices from a brand perspective, and it is also a critical element to Google Analytics. Companies are hiring the best person for the job regardless of where they are located, and because of that, they need to provide that team member with a flexible workspace or a virtual office in their market.”

Virtual offices now represent around 30% of IWG's total revenue and continue to expand as more partners join the network.

The Future of Flexible Workspaces and IWG

Looking ahead, Berger expressed optimism for the future of flexible workspaces. 

“This is an industry that is slated to make up 30% of commercial real estate portfolios by 2030 — today it is less than 4%,” Berger said. “And the demand is not hyper-concentrated in places like downtown Manhattan. It is remarkably spread out across cities, towns, neighborhoods and suburbs. If we look at our current network portfolio, for example, we operate in every major district in America, but a lot of our centers are also in secondary markets because people want workspaces where they live.”

Dercks says he is equally optimistic about his future within the working industry. “We are confident that we have more space that we can potentially expand into IWG depending on the future,” he said. “We believe flexible workspaces are here to stay — we can see the growth and we have the data that really proves our model. Expanding for us would be an easy decision.”

Now, IWG is actively seeking more partnerships to meet that growing demand. For potential investors looking to follow in Dercks’ footprint, Berger recommends they think about the future and ask themselves how they are shifting a portion of their real estate portfolio to keep up with a dramatically changing sector. 

“Let us prove why we’ve been doing this for 25 years,” said Berger. “At some point, many restaurant investors probably looked around and said: ‘I think there are too many McDonald’s.’ But they regret that decision now. This is an industry and sector that is in the bottom of the first inning. The industry is growing so quickly, we can barely keep up with the demand. Now is the time to take that step and engage with IWG. That way, we can turn that space into something brilliant and drive a return on investment." 

Watch the full conversation here.

Learn more at https://1851franchise.com/internationalworkplacegroup/in