- The global health crisis is impacting flexible workspace operators, including IWG plc, which saw a drop in shares this week.
- Despite this drawback, IWG is one of the most likely operators to come out of the coronavirus crisis stronger.
- Flexible space operators are being encouraged to follow IWGโs lead by speaking with landlords and requesting support over the coming months.
The COVID-19 health crisis is hitting the flexible space industry hard. At a time when people are being told to stay at home and physically isolate themselves from one another, the shared space sector, which thrives on collaboration, is feeling the impact.
Many flexible spaces in lockdown areas have been forced to close their doors. Over the past few days, Convene has laid off 17% of its workforce and furloughed hundreds more. Common Desk has issued a temporary decrease in pay. WeWorkโs bonds have slumped. And London-based Hubble, a flexible space search platform, has seen a 90% drop in transactions.
However, a webinar from Cushman & Wakefield on March 23 focusing on the impact of COVID-19 on commercial real estate claimed that this period could, if social distancing and isolation measures work as expected, be relatively short-lived. While the recession of 2008-09 was โlong and deepโ, the COVID-19 impact is expected to follow a V-shaped path, with the potential for a sharp rebound in the second half of 2020.
Of course, the effects will be felt for some time as businesses work to regain several monthsโ worth of lost ground. But of all the industries that have the potential to bounce back stronger, flexible space is it.
The sector often thrives during times of uncertainty, as businesses opt for greater flexibility rather than committing to long term leases. The sector has been growing and solidifying for the past 40+ years and has proven resilient throughout numerous downturns — including the dot com crash and the global credit crisis of 2008-09.
So why, then, is one of the sectorโs most proven operators taking a direct hit?
IWG, the worldโs largest flexible office firm and one of the longest-running, saw its shares drop more than 16% on Monday this week (March 23rd). The firm said it would temporarily suspend a ยฃ100 million shares buyback and has reportedly scrapped profit forecasts for the year.
Despite this drawback, IWG is one of the most likely operators to come out of the coronavirus crisis stronger.
The firm is profitable and cash-rich. It does not lock itself into long-term leases, it has a diverse product and brand portfolio, and it has the benefit of 30+ years of operational experience that has traversed every major financial crisis.
So why are shares dropping?
To prepare for the inevitable impact of COVID-19, IWG has started requesting landlords for a rent freeze. The letter reportedly asks landlords for a three-month rent freeze and in return, it will extend its lease by three months to make up the income.
This planning, among other factors, appears to be spooking investors and leading to a drop in shares.
โIt seems that IWG is being punished in some way that makes no sense at all,โ said Frank Cottle, CEO of the Alliance group of companies. โIโve been in this industry for over 40 years and IWG is the largest and strongest operator by far. Mark Dixon is a veteran within our industry and has lived through a number of economic cycles; his firm has not only survived but come out stronger.โ
Aside from a knee-jerk reaction to the crisis, the hit on IWG could also be due to a lack of awareness. Even though physical workspaces are limiting access, other revenue-generating services such as mail processing are continuing almost normally — but this is not what firms like IWG are best known for.
โWhat they donโt consider is that IWG and in fact our entire industry is considered โessential businessโ as we manage business mail,โ added Frank. โIn the US, and elsewhere, we have official status as commercial mail receiving agents, making us an outpost of the postal service, so most centers will generally not be required to close unless there is a location-specific health concern.โ
Suggested Reading: Coronavirus: Why Some Workspaces May Be Classed โEssential Businessesโ And Should Remain Open
On that note, it doesnโt help that media magnet WeWork was forced to close at least seven of its New York City locations after individuals tested positive for COVID-19. Those headlines are further worrying investors by painting flexible space operators as immediately vulnerable.
Even so, IWG’s board said it is confident in the long-term structural growth drivers of the global flexible work market.
Frank concurred, โWe have a huge mass of potential new clients that will now consider working remotely and flexibly as the new normal. This isnโt just about small companies saving money on real estate; large companies will also want to insulate themselves in the future from exposure to long term leases.โ
As for IWGโs stance on talking to landlords, this is now being encouraged across the entire industry.
Operators are being urged to approach landlords to find ways to work together to sustain their businesses for the short term. In a recent webinar Giovanni Palavicini, a real estate strategist, explained how to approach landlords while in an interview with Allwork.Space Scott Harmon, Founder of Swivel, explained some of the potential measures on the table, such as โblend and extendโ amendments. Read more about these measures here.
โFollow IWGโs lead and speak to your landlords,โ urged Frank. โIt will support your businesses in the short term.
โLonger term, the position of the industry at large is very positive. When you consider all of the companies, large and small, that are shifting to remote work due to COVID-19, many will most likely migrate to our industry as a long term solution now that they have fully tested the โremoteโ work model, and found that they can indeed manage teams remotely, cut costs, and work more productively.โ
