Dr. Gleb Tsipursky – The Office Whisperer
Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
Drew Jones – Design & Innovation
Jonathan Price – CRE & Flex Expert
- IWG warned its profits would fall below forecasts as inflation, a volatile stock market, the war in Ukraine, and China’s Zero Covid policies keep people home.
- IWG isn’t alone in its “post-pandemic” financial struggles. Tech stocks in the US are taking a historical dip, sending investors into a frenzy after committing to what are normally seen as safe-bet investments.
- IWG’s share prices fell 35% over the last year despite its consistent expansion around the world and in suburban neighborhoods.
The world’s largest provider of flexible offices hasn’t been immune to the volatility of the post-pandemic era.
Recently, IWG warned its profits could come below forecasts as inflation, a volatile stock market, the war in Ukraine, and China’s Zero Covid policies keep people home.
But there’s more to the story.
IWG isn’t alone in its “post-pandemic” financial struggles. Tech stocks in the US are taking a historical dip, sending investors into a frenzy after committing to what are normally seen as safe-bet investments.
So what is causing shares to falter? Is IWG a unique case? Or is the office operator part of a wider discussion that is impacting the global economy?
Inflation
Most have likely heard the startling statistic that inflation in the U.S. reached a 40-year high.
In fact, research from Pew Research Center shows that 70% of Americans believe inflation is the top concern for the country today.
The UK, and the world, are following a similar trajectory.
According to the Office for National Statistics, inflation in the UK rose to 9% last month. This has also driven interest rates, housing prices, and cost of food to go up, adding pressure to businesses attempting to recover from the pandemic.
For the flexible office industry, there’s a catch-22 in play.
Demand for these workspaces has spiked over the last few months as the threat of the pandemic weakens.
Leaders of flexible offices have reported seeing piqued interest for more flexibility for a few reasons. Companies seeking to incorporate flexible offices are:
- Embracing the pivot to hybrid work policies
- Looking to cut their real estate costs
- Focusing on serving staff working closer to their homes
- Diversifying their overall portfolio
- Expanding their reach to new regions
Still, demand does not mean that major flexible office firms are immune to inflation — they are just more resistant than their small, boutique competitors.
Stock Market Volatility
Just earlier this month, IWG warned that several factors would likely hinder their performance in the coming years, including their profits and shares.
IWG’s share price fell over 6% to 238p and is down more than 20% from the first week of May.
However, IWG is joining a growing list of companies that are heeding caution to investors and analysts when it comes to their near-future earnings.
Companies that saw lower-than-expected Q1 2022 profits include:
- Amazon
- Alphabet (parent company of Google)
- Meta (parent company of Facebook and Instagram)
In short, losses are not exclusive to the flexible office sector.
To compare, WeWork reported its revenue grew 7% quarter-over-quarter during its most recent quarterly report. Although its shares have either dipped or remained neutral in the last month, investors into the coworking company were finally able to breathe a slight sigh of relief as the firm showed signs of closing its loss gap.
Over the last year, IWG’s share prices have fallen 35% despite its consistent expansion around the world and in suburban neighborhoods. One theory that could explain the company’s falling shares is that the stock market is currently more focused on profitability, rather than physical footprint.
The War in Ukraine
When Russia invaded Ukraine in February, governments enacted strict sanctions on the country, while companies from all industries ceased their operations.
Despite the financial losses that struck companies who did so, many felt that social responsibility took precedence over revenue.
While consumers likely find this admirable — a Morning Consult report shows 3 in 4 Americans support cutting ties with Russia — it has still had rippling effects on the global economy.
In March, IWG CEO Mark Dixon revealed that the company would gradually pull out of Russia in response to its invasion. WeWork followed suit and divested its business in the country as well.
It may be unexpected that pausing operations in just one country would become a financial burden, but the cost of doing so has added up quickly.
China’s Zero Covid Policy
China has instilled some of the strictest Covid-related policies in the world. Through its Zero Covid strategy, the country utilizes contact tracing, lockdowns, quarantining, and testing to deter cases from rising.
As a result, countries that rely on China’s participation in the global economy are holding their breath as the fate of their profitability hangs in the balance.
For instance, Apple CEO Tim Cook warned that the spread of Covid in China could cause the tech firm’s sales to fall by $4 billion to $8 billion during this quarter.
In the flexible office sector, a Zero Covid policy means shuttering offices or reinstating restrictions about how many people can come and go into these spaces.
IWG in particular stated that recovery across its 120 locations in China was being delayed due to this policy, further slowing its ability to recover.
Although the company has seen a notable rebound across other parts of the world, the ongoing closures in China are weighing down IWG, as well as many other companies.
Pairing these losses with the business closures seen in Russia and Ukraine, it makes sense why countless first quarter reports showed consistent revenue losses and share dips.
In 2020, WeWork sold control of its China operations, turning these spaces into a franchise model.
It could be surmised that this deal helped alleviate financial pressure other companies are feeling from the country’s Zero Covid policies, while contributing to its slightly more optimistic quarterly report.
Are Share Dips Unique to IWG?
Much has been said about what IWG’s falling shares could mean for its future.
Some have predicted that the flexible office industry may not be sustainable afterwards. Others are anticipating mass closures and consolidations in the future.
However, taking a broader look at the economy shows that this market volatility isn’t unique to IWG, nor the flexible office sector in general.
IWG and WeWork are among the top competitors within the flex space industry, but both are currently experiencing different paths of growth and market cycles. Circumstances could change in the blink of an eye depending on external circumstances.
Today’s economic climate is nothing short of unprecedented as the world attempts to claw its way out of the pandemic’s chokehold and address countless global events.
While a recession is likely to make its presence known in the next 12 to 24 months, companies who can sustain their growth, dial back on money-losing projects, and monitor their spending during downturns can stay afloat during these times of uncertainty.
