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05 Jul 2022

Why IWG's Americas Coworking Growth Plan Involves Malls, Churches and Landlord Partnerships

Why IWG's Americas Coworking Growth Plan Involves Malls, Churches and Landlord Partnerships
Flexible Office Space Provider Considers Nontraditional Buildings and Deals for Workspaces

Wayne Berger, CEO of the Americas for IWG, the world's largest flexible office space provider, is betting big on U.S. landlords by planning to team up with property owners on what could be the company's most aggressive expansion to date.

IWG plans to add 500 to 700 locations by mid-2023 in the United States through some of its best-known brands such as Regus and Spaces. Most of the new locations will be through partnerships with landlords, while the rest will be franchise agreements.

The plans would bolster IWG's portfolio by about 50% in the Americas. It's the U.K.-based company's largest and most profitable region, with more than 1,250 locations in the United States, Canada and Latin America.

"We think the lion's share, or about 90%, of the new locations in the next 12 months will open in partnership agreements with landlord partners," Berger, who is based in Toronto, told CoStar News. "We are seeing a significant number of new locations having been just signed in the last 30 days through this new initiative."

Management agreements with landlords reduce the risks for the coworking company and allow it to share profits with the landlord when space is rented. Other coworking companies IWG competes with, including WeWork, Industrious and Serendipity Labs, are also betting on management agreements with landlords as part of their growth plans.

Flexible space is expected to grow from 2% of the office market to 30% by 2030. To meet that demand, landlord partnerships will keep growing, Berger said, with flexible space shifting beyond offices to retail centers, mixed-use properties and light-industrial buildings.

IWG has been reaching out to owners of nontraditional buildings to expand its network, including opening in a former church in Tulsa, Oklahoma, that's in the pipeline. IWG already has locations at a supermarket in London, in shopping malls in Colombia and in a shopping center in Napa Valley, California, and all those locations have done well financially, Berger said.

IWG's larger growth plan includes opening about 1,000 additional locations throughout the world in the next 12 months, founder and CEO Mark Dixon said in March. The decision to add 1,000 locations to its global real estate portfolio, which spanned 3,314 locations at the end of 2021, comes after two years of IWG making minimal additions to its footprint.

Global Expansion


In the past month, IWG has signed more than two dozen landlord agreements as property owners see a profitable path forward in offering flex office options to companies embracing hybrid work. IWG entered a landlord partnership agreement recently with Simon Property Group, one of the largest U.S. mall owners, to bring flex office space to some of Simon's retail properties.

Berger said IWG plans to open a location at The Domain in Austin, Texas, in early 2023 that is expected to be the first of many partnerships between IWG and Simon.

And that is just one example of what IWG has up its sleeve, with the flex office provider set to soon open one of its first franchised Regus locations in Toledo, Ohio.

Franchise locations tend to take longer to open in North America with regulatory hurdles to meet, Berger said. With both pipelines — landlord partnerships and franchise agreements — continuing to grow, Berger said IWG is on target to meet its growth goal by next year.

The demand is coming from both urban areas in large cities such as Los Angeles, New York and Washington, D.C., as well as smaller cities, including Atkins, South Carolina; Green Bay, Wisconsin; and Birmingham, Alabama.

"Flex is becoming a greater amenity for landlords, with flex space in a portfolio providing a unique solution to tenants," Berger said. "I think we'll also start to see the valuations of buildings start to shift as flex space is recognized as an integral amenity in a building."

Talent War


IWG wants to "make it ubiquitous" between corporate and partnership locations so the experience is the same for the end user, Berger said.

"Flexibility has never been more critical for companies," Berger said. "There's a real war that's taking place in the ability to attract and retain talent. It used to be top talent, but now it's just about talent in general."

This has pushed 88% of companies to institute a flexible work policy to meet employee demand, Berger said, citing IWG research. Workers often choose flexibility over other job benefits, including salary and time off, he said.

With recession concerns hitting boardrooms, Berger said companies are reviewing their real estate portfolios to determine what they should look like in coming years. Often those decisions include reducing the square footage leased, with a revamped headquarters catering to client meetings and employee collaboration and fewer offices and cubicles.

"There is a real push toward ubiquity and a real shift toward flexibility," Berger said, with companies even reflecting this flexibility by hiring outside of their traditional markets to find a specific type of professional.

He added that "companies are expanding into new markets in the U.S. and teams are becoming more geographically disparate than ever before, which means technology is a critical enabler, and companies want to give their employees access to workspace regardless of where they live, which is why flexible workspace is becoming a larger and larger solution."

In coming years, Berger said he believes the industry will see "unprecedented growth" in flex space, with the world entering a "renaissance period of flexible working" after years of uncertainty.

Digital Revolution


IWG reached a deal to merge some of its key digital assets with Instant Offices, a digital marketplace for office space, in a move made earlier this year that is independent from the flex giant's business. It's expected to result in an initial public offering or some other avenue within the next two years. Berger said he expects the business to upend the flexible office space market.

"Our intention is to build the world's largest digital platform of space," Berger said. "We want to provide accessibility to office space and completely disrupt the business from how it's been operating for the last 100 years."

Whether it's a landlord wanting to market a plug-and-play space or a coworking operator seeking to reach clients, Berger said the platform could act as a booking service for clients. Instant Offices also helps flex providers operate their locations with back-office services. Critics of the merger have said the deal could give IWG a leg up by seeing what has been a fairly opaque industry.

"It's the complete future," he added. "When you look across other businesses and industries with a high-touch human service models that have been disrupted, you see commercial office is the next major sector to do so. People will have the ability, through technology, to access where they want to work that day or if they want to work at different places multiple times a day to book it, pay for it and make it easy."

The app would operate in similar fashion to apps for athletic classes such as ClassPass or StudioHop, where users could book a flex space during a specific time of day or in an area where they find themselves, Berger said.

Instant Offices would face competition from existing companies like DeskPass, the largest on-demand network of flexible workspace in the United States, which expanded into Canada last year. But, for this rapidly growing subset of real estate, IWG has experience to compete from its 33 years of operations.

The office workplace prior to the pandemic had been operating "like it was the industrial revolution for the last 100 years, like we had to go somewhere to manufacture something," Berger said. "But the reality is so many of us are knowledge-based workers, and don't need to be in a physical location to work. You have to bring space to the people."