Servcorp Closes 12 US Locations: Is COVID-19 To Blame?

• Australia-based flexible office giant Servcorp is more than halving its portfolio in the US, closing 12 locations.
• The coronavirus is not entirely to blame, as the company was struggling with its US locations prior to the pandemic.
• Cultural differences may be to blame, as what worked well for the company in Australia and other Asian markets didn’t transition well to the US.

Early this week, news broke out that Servcorp would more than halve its footprint across the US with the closure of 12 of its flexible workspace locations. 

According to reports, the Australia-based company will close its locations in Atlanta, Boston, Dallas, Los Angeles, Miami, Philadelphia, San Francisco, and Washington D.C. 

While the closure of the locations coincides with the COVID-19 pandemic, the coronavirus is not entirely to blame. 

Speaking to The Australian Financial Review, CEO Alf Moufarrige stated that “the virus was the last straw” and admitted that the company was struggling with its US locations prior to the pandemic. In fact, in an interview with Business News Australia in November 2019, Moufarrige stated that the company’s future in the United States was not looking good. 

“If we can’t turn it around in the next six months I will take drastic action,” Moufarrige said on November 13, 2019. 

It’s not surprising then, that the company is falling back from its US business and that it decided to halve its footprint, keeping only 10 flexible workspace locations across Chicago, New York, Houston, and Washington D.C. 

What Went Wrong

If the COVID-19 pandemic was simply the drop that tipped the bucket, then what exactly went wrong?

Servcorp is considered to be one of the industry’s pioneers; the company’s founding dates back to the 1970s, well before coworking and flexible offices were mainstream. 

Lack of experience then, is certainly not an issue. 

Speaking to The Australian Financial Review, Moufarrige claims that their lack of success in the US market is likely due to cultural differences. 

“We can’t enforce Australian standards on Americans,” he said during the interview. 

What has worked well for the company in Australia and other Asian markets didn’t work for them in the US. 

They’re certainly not the first company to struggle with this. 

It’s worth noting that there are not many truly global flexible workspace providers. For some reason, the flexible workspace industry has not been able to successfully cross borders at a massive scale. IWG’s Regus, Servcorp, and WeWork are only a few that have been able to put down major footprints across various countries, but the effort hasn’t come without its own set of challenges. 

When Regus (now International Workplace Group) first entered the US market, it didn’t perform as well as it did in the UK and it filed for Chapter 11 bankruptcy in 2003. On a similar note, WeWork has had a hard time penetrating the Asian market and it had trouble making its product resonate in Latin American markets. 

What Does It Mean for the Industry?

It means that establishing a global footprint isn’t easy, even for large well-established operators. But this is something that many flexible workspace operators already know. 

The good news is that this doesn’t mean much for the flexible workspace industry. Even for Servcorp, the closures won’t hamper its expansion plans. 

“Indeed, in this time of opportunity, we are passively looking for locations in which to expand in early calendar year 2021,” the company said in an ASX announcement on Monday.