As the Demand for Flexible Workspaces Has Grown 30%, IWG (Parent of Regus, Spaces, and other Flexible Workspace Brands) Targets 1,000 Additional Locations

The flexible workspace model has been steadily gaining popularity since before the COVID-19 pandemic forced professionals into remote work, but that change only fueled growth further. Now, as many employers recognize the demand for continued flexibility, traditional offices are full of vacant space, and landlords and business owners alike are working to adapt.

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 announced plans to increase its America’s footprint. The concept plans to add 1,000 more locations under agreement next year, with the majority coming from landlords, building owners and institutional developers who want to fill empty spaces and generate revenue and operating income. 

The Pandemic Only Drove up Demand for Flexible Workspaces

Though some view a flexible work model as something that directly resulted from the pandemic or a progressive idea that was only embraced in certain sectors, that is not the case. IWG was founded by Mark Dixon in 1989 — remote work has been present for decades.

“Prior to the pandemic, we were living in an era where more and more people — workers and organizations — were moving towards flexibility,” said Wayne Berger, CEO of IWG The Americas, during an 1851 Webinar. “Back in 2019, over 50% of the world’s workforce was working from somewhere other than a traditional office at least one to two days a week.”

Workplace demand can be found in IWG’s lead generation, which processes more than one million leads each year from people who need flexible space. The pandemic accelerated requests by 30%, offering 1.3 million requests annually. A mass shift towards flexibility has resulted in 88% of organizations instituting flexible working policies and 90% of workers demanding flexible models.

“Coworking is industry agnostic. Workers and organizations are moving towards flexibility at a greater pace than we’ve ever seen,” Berger explained. “The idea of going to one centric location or a corporate headquarters every single day, five days a week, between 8:30 and 5:00 is a thing of the past.”

The benefits of a flexible model are countless, but the primary drivers are people, profit and the planet. People are happier and experience wellness benefits when they can work flexibly, organizations can reduce or eliminate corporate real estate from their investment portfolio — often one of the most expensive requirements, and decreased commute requirements cut back on harmful emissions.

Employees see these benefits clearly and are pushing back against companies who look to require in-person work at a single, central location.

“Most people who had the ability to work from somewhere other than their office from 2020 to 2022 did so in an incredible way and helped drive great value for their organizations,” Berger added. “What they’re now asking for is, ‘Provide us the same level of respect that we all undertook together to work really hard under unprecedented conditions. Let’s apply the same level of autonomy and flexibility.’”

As Employers Adapt to the Needs of the Workforce, Landlords Struggle To Secure Long Term Capital Leases

“There is going to be a large subset of space that is going to be sitting, waiting for the tenant that is no longer arriving,” Berger said.

With employers embracing flexible models, the need for more traditional capital leases simply is not there. As such, many landlords and business owners alike are left to mitigate loss. This creates opportunities for partnership with IWG in a way that can be financially beneficial while meeting the ever-growing demand for flexible space.

IWG partners directly with landlords to leverage vacant space and with tenants, given the approval of the landlord, to mitigate loss associated with an existing capital lease for a space that is consistently vacant. 

“The commercial real estate industry is going through a seismic shift,” he said. As leases expire, landlords are looking to continue leveraging that space for profit. However, the majority of standard capital leasing hinges on renewals. As building owners work with tenants to determine how much space is necessary moving forward, many tenants are scaling back due to company-wide flexibility protocols, leaving landlords with vacant space.

“If you’re an individual building owner or you’re an organization that has 12–24 assets, right up to the largest institutional developers, we have the ability right now to go in and take vacant space and partner with landlords to take that space and activate it into a flexible workspace that is in high demand today,” Berger added. 

How the IWG Model Relieves the Vacancy Issue

“We’re partnering with building owners to help them take their vacant space that’s on the market that hasn’t moved over the last couple of years and frankly may not have a strong pipeline forecasted in conventional lease tenancy,” he said.

By partnering with IWG, the owner can invest in their existing space to convert it to an IWG space. IWG’s best-in-class technology, networks and marketing allow it to promote the space three to five months prior to the expected opening date, yielding an immediate return on investment for the partner.

“There’s a management fee that’s put into place to activate the location on to all of our systems, to connect it to the world’s largest network of coworking and flex space locations around the world and to connect it to the 10 million-plus clients that we have today,” Berger explained. 

Rather than a traditional lease, the building owner signs a partnership agreement that allows IWG to manage the space on behalf of the landlord; this provides them access to IWG’s 34 years of expertise, the best IT infrastructure and a massive pool of demand, all as a passive investment.

This diversifies a landlord’s revenue stream through a building they own and serves as an incubator for further expansion. As the companies that provide IWG space to their employees grow, they will eventually need to expand the agreement; this can be done with additional IWG space, or they may consider returning to a conventional lease with the building owner. 

As more and more organizations search for commercial real estate options online, IWG has the right technology, systems, platform, sales and marketing to continue to drive great demand toward the building owner.

The Process to Partnership

When IWG begins to work with a partner, one of the first steps is to discuss financials and expected revenues over time. After discussing how an existing space may be converted into a Spaces, Regus, HQ or Signature location, IWG transfers that information to a detailed financial model.

“With that financial model, we’re able to demonstrate when the landlord or building owner should be able to recoup their capital, when they start to drive income from the first day, when they’ll start to drive income equivalent to what their market rent is in the building and when they should anticipate a premium versus the market rent,” Berger explained.

If the model makes sense for the building owner, the transformation to a great flex space begins, and the landlord gains access to all of IWG’s resources.

“Their investment is capital and confidence,” Berger added. “From there, we get to work doing what we do incredibly well: building, launching and operating incredibly successful new locations across our growing network.”

The Future of Flexible Work and the Concept of the 15-Minute City

Currently, flexible workspaces account for 3% of all commercial real estate. However, many analysts predict that number will climb to 17% by the end of 2024 and even 30% by 2030.

“Removing myself from the industry, I emphatically believe that this sector of flexible workspace and coworking is going to grow to, if not exceed, 30% by 2030,” Berger said.

However, due to the sheer volume of office spaces that currently sit vacantly, there simply is not enough flexible workspace to accommodate the demand. “Flexibility” no longer refers to office hours, Berger added, but is a strong indicator of location preference.

While some landlords are not completely comfortable with embracing the flexible workspace model, the sentiment aligns more closely with “not yet” than “absolutely not.” There is a shared recognition of the practicality of the concept, and proven returns are attractive; the last moving part is the shift of collective mindset away from the 10-year securitized lease.

A primary driver in this shift will be the power employees hold. 

“We’ve all heard of the Great Resignation. Employees today, frankly, have more power in decision making how, when and where they work than ever before,” Berger added. “Flexibility is continuing to grow and is not going away.”

Much of employee demand is associated with this concept of a 15-minute city: the idea that residents can access all aspects of their lives within a five to 15-minute bike ride.

The ability to access entertainment, dining, fitness and all other amenities within five to 15 minutes greatly increases residents’ well-being and is a lifestyle gaining traction in many communities. The concept has become paramount through the exit of the pandemic and is a key driver of where people choose to work.

Employees still want the ability to congregate, but they want to do it on their own terms. In many cases, this involves adding an IWG flexible workspace to smaller, more suburban communities. There are plenty of towns where people live and are forced to make a long commute to get to work each day.

“Now, it’s about bringing workspace to where people want to live,” Berger said. “The only way to do that, though, is to have a great network of space that’s convenient.”

Flexible workspaces are growing in popularity and necessity as leaders work to employ a geographically diverse talent pool while addressing the needs of their people. Because signing conventional leases in every city or state where team members reside is impractical, many building owners who previously relied on such agreements will be faced with a tough decision. 

To continue to be profitable, landlords will either have to convert how they drive income within the building or work to convert the building to a different asset class, which is often unattainable due to costs, permitting and other processes. This is where the opportunity for flexible space resides.

People want to maximize their time, and landlords want to maximize their space.

“We have an opportunity to partner with great building owners to be able to launch and activate space where people need to have it,” Berger added.

Watch the full interview here.

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