Why Now is the Time for Landlords 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 announced plans to increase its Americas footprint. The concept plans to add 1,000 more locations under agreement next year, with the majority coming from business investors, building owners and institutional developers who want to fill empty spaces and generate revenue and operating income. 

In a recent webinar, 1851 Franchise Publisher Nick Powills, IWG Regional Director of Partnership Growth Ryan Semler and IWG CEO of the Americas Wayne Berger discussed how IWG has seen record-breaking agreements with business investors to turn empty building space into profitable revenue.

What Changed in The Workspace for Landlords in 2022

Following the COVID-19 pandemic, 90% of workers in North America are working in a more flexible way and 88% of companies are supporting those workers. This unprecedented trend is bringing about the most structurally-focused shift in the history of commercial real estate. 

“We anticipate that 30% to 40% of real estate portfolios will be flexible by 2030, and 17% of that will be flexible by 2024,” said Berger. “This means vacancy rates — which are at 65% in the U.S. in traditional downtown financial districts — are increasing rapidly around the world. Space that is under lease, signed prior to the pandemic, is being underutilized or left completely empty. Companies need to reexamine their leases and consider flexible workspace as a core amenity for their portfolio. We are giving them a solution that drives revenue as it matures and can very well exceed the income derived from traditional leases over time.” 

Last year, IWG saw over 400 new partners take advantage of this opportunity in markets around the world. “Suddenly, there is a real dramatic shift in how companies are looking at where they deploy their workforce and what working looks like every day, and in turn, savvy investors are finding ways to meet that demand and drive long-term returns,” said Berger. “Building owners can take a percentage of their portfolio, partner with IWG, invest capital to convert that space to a flexible workspace and start earning income from day one.”

Did COVID Accelerate the Workspace Shift for Business Investors?

While flexible workspaces were growing in popularity pre-COVID, the pandemic certainly accelerated the trend, Berger says. 

“When the pandemic first hit, the first questions building owners had were: How do we make sure air systems are clean? How do we make sure everyone is safe? That is still a critical requirement, but the conversation has shifted,” Berger said. “Many people thought we were going to go back to the way we worked pre-pandemic. But that isn’t true. People don’t want to waste time and money aimlessly commuting to an office, regardless of what they have to accomplish. People really value their time, both at work and outside of work. No one wants to go back.”

Moving forward, organizations’ decisions are going to be based on three critical factors, Berger says: How they attract and retain employees, how they can focus on the environment and how they can become more dynamic. 

“Flexible working is better for people, better for profits and better for the planet,” Berger said. “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. This complete shift, as an investor, is something to pay attention to.”

The Evolution of Conversations With Business Investors and the Future of Workspace

As IWG continues to appeal to more partners and have conversations with new potential owners, Semler says they are able to gain a keen understanding of the issues business investors are dealing with today.  

“Some owners have been struggling to fill space for years, and others just had some become available,” said Semler. “We can now offer them flexible opportunities in any type of building, not just your standard office space. You may own a retail building, a transport hub, an apartment complex, a hotel. It doesn’t matter. You can really see it from all sides of the spectrum. More and more building owners are starting to see the value of bringing a flexible workspace to their portfolio.”

Similarly, several large organizations are turning away from long-term commitments when it comes to real estate. 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. 

“Companies are realizing they don’t have to pay a huge lease fee — they can save money and increase flexibility by building with us,” Semler said.

What, How, Where and When Do People Call Work? What Are the Benefits of Proximity and Flexibility of Workspaces for Employees (Past, Present, Future)?

People are waking up to the benefits of flexibility, but the overall shift is going to take time, Berger says, especially since many of the business leaders of today grew up in an environment where going into the office everyday was a romantic notion. In the next seven years, 75% of the workforce will be Millenial and Gen Z. As the first two generations that grew up in a digital world, there is little doubt they will be thinking about work much differently. 

“There is a quote from Bill Gates that I love. ‘As a human race, we always exaggerate the impact of change over one to two years, and underestimate change over 10 years.’ That is exactly what is happening now,” Berger said. “We’ve worked the same way since the Industrial Revolution. There was a time when our economy was manufacturing-based, where you were required to go to a physical location to achieve the results of your job. Those are still critical industries, but we now have 1.5 million knowledge-based workers, who don’t need to be at the same corporate office everyday.”

But as a massive structural shift in the way people work, Berger says the process is bound to feel a little messy. For example, big companies like Chase, JP Morgan or Twitter announcing their decision to require employees to head back to the office, isn’t actually as black-and-white as it seems. 

“When you actually read between the headlines, they are still promoting a hybrid approach. They are just at a stage of shifting,” said Berger. “Those companies want their employees back in the office for just a few days a week. So, even if we conservatively say they will be at the office four days a week, that still leaves 20% of the week where they need another option. The ability to support that 20% is still an incredible investment opportunity for landlords in commercial real estate.” 

What Questions Are Business Investors Asking?

Although many business investors understand the big picture impact of hybrid working, Semler says a lot of the candidates IWG talks to are hesitant about whether or not a flexible workspace can succeed in their specific building. 

“That is a common question we get,” said Semler. “They need the knowledge to understand why there is demand in that territory. They may understand the larger trends, but they need to understand the specifics of their building. We can talk with owners and explain why their location is a great option for us. We have specific plans in place for all of our territories and understand the needs and demands of the area.” 

Semler says IWG will sit down with every prospective investor and lay out a financial model to showcase when they will recoup their investment, drive income and bring in a premium over-market rent. From there, IWG will help building owners understand an indicative floor plan.

After the agreement is signed, 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 Semler.

IWG Building Out Space Differently Now Versus Pre-Pandemic 

Coworking has emerged as one of the primary, lasting impacts of the pandemic, but that doesn’t mean the industry hasn’t had to adapt to the times. IWG, for example, has spent the past three years finding ways to better align with what employees, employers and business investors are looking for today. 

“We are shifting to a smaller office portfolio footprint, for example, because we’ve seen a high demand from smaller teams and individuals who need a coworking space,” said Berger. “We’ve also invested more into technology since that is such a key tool that allows for successful hybrid working.”

Similarly, Berger says one of the primary shifts IWG has seen is where in the country people want to work. IWG used to primarily grow in downtowns and then moved to the suburbs. Now, they are seeing a huge acceleration of demand in small towns of 10,000 to 15,000 people because workers want to stay close to home. 

“As companies become more geographically diverse, we’ve also seen more and more candidates ask us for access to locations across 20 to 30 cities,” Berger said. “That is why we’ve been dramatically accelerating opening locations in smaller markets and transport hubs, like Champagne, Illinois or Duncan, Texas.”

What Are The Key Amenities for Employees?

IWG is focusing on smaller markets because the number one amenity employees are looking for today comes down to the concept of the 15-Minute City, Berger says. They want to live, work and play, all within a 5-to-15-minute commute.  

“There is so much demand in markets all over North America,” Berger said. “We are really shifting to a new economic approach in which people want to live, work and access services close by. That means smaller towns are a perfect place for coworking. Instead of traveling to the closest large city to work everyday, people from these towns have access to work closer to home.” 

Once the location is right, workers are really looking for a nice, club-level coworking experience. “It has to go beyond a great space,” said Berger. “Employers’ teams are more spread out, which means they need more support from us to ensure all workers everywhere are having the same quality-of-life experience. For example, health and wellness is now the number one benefit people are thinking about when joining or staying with a company — superseding pay, bonus and title. It can’t be ignored. That is why IWG provides employees and employers with all the benefits they need for a fulfilling experience, whether it be fitness or gym memberships, access to programs and events, etc.” 

Shift of Employees Back into the Office

Although WFH became such a hot topic during the pandemic, only 11% of people actually want to work fully out of their home, Berger says. Rather than simply working from home or from the office, most 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.

“It is not about working from home, it is about flexibility,” said Berger. “Workers have demonstrated that the more they feel empowered to have a choice, the greater results for organizations. Everyone wants to be treated like an adult. They are paid to achieve goals and results for the organization. They want the ability to do that wherever they see fit.” 

At the same time, very few remote companies are providing the necessary tools workers need to WFH comfortably full-time and meet the company’s I.T. security protocols. “Only a fraction of people even have the capability to work out of a home office,” said Berger. “People need that separation between work and home. Getting people out of their homes is not challenging — it's getting them to commute an hour that is no longer possible.”

Landlords Diversifying Their Portfolio with IWG

The beauty of the flexible coworking industry is that it is not only flexible for employees/employers, it is also flexible for business investors. Building owners do not need to worry about converting their entire portfolio to flexible workspaces, for example. In fact, Berger says, diversification is key. 

“Landlords only need to convert some of the space under their portfolio,” said Berger. “This will simply provide them with a new stream of potential tenants they can’t access today. It is also a new stream of income. We’ve been able to successfully launch an IWG location in a space as small as 10,000 square feet.”

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

Competitive Advantage of IWG for Business Investors

So, why choose IWG over any other flexible workspace provider? 

“Number one, we have access to the largest collection of clients in the industry,” said Berger. “If you are Amazon and you need to place 30 developers in a city of 50,000 people, you are looking for a turn-key solution. Because we have 10 million clients using our spaces everyday and we work with 85% of Fortune 500 companies, we can give companies the ubiquity and convenience they desire. They want to be able to place their people within 24 hours. They know that they can rely on IWG to meet all of their needs.” 

Overall, there isn’t another provider of any reasonable size that brings the same level of experience as IWG. “We currently operate the largest platform in the globe when it comes to real estate,” said Berger. “Why does that make a difference for building owners? Today, we receive 1.2 million inquiries every year from people, companies and workers, who are explicitly looking for space. The demand continues to come in, and now we are trying to keep up with supply. The bigger we are, the more demand we drive, which in turn means we need more locations. That is why, if you are a property owner or a management company with empty space in your portfolio, the time has never been better to join IWG, activate that space into a high-demand flexible workspace and bring in revenue immediately.”

Watch the full conversation, here. 

Learn more at https://www.iwgplc.com/en-gb/develop-a-location.