Wednesday, December 4th, 2019 December4th2019

Sell for More News: Before WeWork…there was Regus

Published on December 4th, 2019

Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.

 

Many people think WeWork invented the coworking business. Not true. A company called Regus did 30 years ago. But back then the concept wasn’t called Coworking…it was called “Executive Offices.”

Today Regus is one of the brands owned by International Workplace Group (IWG) which has built an empire of flexible office spaces with brands like Regus, Spaces and HQ in more than 1,100 cities around the world. That’s 10 times more than WeWork.

Who is IWG?

In the first half of the year, IWG reported an operating profit of $63 million, while WeWork had an operating loss of $1.37 billion.

One big distinction between the two companies is that IWG gets more of its revenue from selling its customers services like the use of office staff and tech support than WeWork does. IWG gets 28% of their revenue from services. WeWork only had 5% revenue from services.

To make it in the coworking business you have to collect more than just rent.  It’d be like having a hotel where you give all the food and drink away, and room service is free too. You might have a full hotel, but you just cannot make any money.

IWG also operates through partnerships with landlords which reduces its risks and potential rewards.  And recently they’ve begun to franchise.

IWG believes corporations want to outsource everything they can. Anything they don’t have to do, they don’t want to do. Real estate is one of those remaining, very difficult things companies have to do…find space, design space, build it, operate it. They just want space as a service, and if you do it in a shared way, it’s cheaper, it’s more flexible, and it’s not on your balance sheet.

And shared-space operators aren’t targeting start-ups.  They’re all hoping to sign up large corporations. Many believe signing up big companies is crucial part of becoming successful.

But it hasn’t been all smooth sailing for Regus.  In 2003, the US operations of the company filed for bankruptcy protection. It had grown too fast in the lead up to the dot-com bust.

Flexible leases are here to stay

It’s time to embrace flexibility as a permanent reality. Historically considered a niche offering, flexible office space has become a prominent component of several real estate strategies. It’s not new for freelancers, remote workers and startups…but, today, the model is also squarely related to large enterprise interest levels in speed and cost savings. This well-documented interest will drive continued exponential growth of this sector.

The demand is clear

Market data provider Statista estimates that more than 1 million people in the U.S. will work out of flexible office space by 2022.  There is enough demand to meet the existing supply of flexible office space.

Landlords are finding increased demand for flex space offerings from potential tenants. Many lease agreements between traditional landlords and flex office operators are giving way to a range of models that are changing the risk and reward dynamics for both parties.

Some landlords are even introducing flex offerings under their own brands and we’re surely just scratching the surface there.

The Occupiers Are Speaking

According to CBRE’s 2018 Americas Occupier Survey:

  • 75% of corporate occupiers anticipate including flexible space in their occupancy portfolio over the next three years.
  • 52% of respondents anticipate implementing some level of unassigned seating in their workplace to promote space efficiency and space plan flexibility.
  • 81% of respondents perceive amenities as integral to the employee experience and engage landlords and other service providers to enhance these offerings.

How big can flexible offices get?

Under 2% of total U.S. office inventory is dedicated to flexible office space and there are only a handful of submarkets that have more than 5 million square feet of total office inventory with a flex-penetration rate of 5% or more.

CBRE has constructed a model to help predict the amount of flexible space that may be delivered to the market by 2030. The mid-growth scenario, the most likely one to occur, would increase flexible office space to 13% of total supply by 2030.

 


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About Beau Beach, MBA CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com