Coronavirus is causing a shift to suburban working while city centres suffer, according to the boss of IWG, the world’s biggest flexible workspace provider.
“All of the new franchise agreements we’re signing are in the provinces and the suburbs,” said Mark Dixon, IWG’s chief executive. “Covid has made interest levels go off the charts,” he added.
The so-called hub-and-spoke model, where companies take a small city office supported by a number of regional satellites, was likely to receive a major boost from the pandemic, according to Mr Dixon.
But a push to the provinces was not enough to prevent IWG from swinging to a pre-tax loss of £176m in the six months to the end of June, compared with £35.5m profit in the same period of 2019, on the basis of the IAS 17 accounting standard.
The company cited total charges of £155.8m resulting from Covid-19 in the first half, including £127m to cover the costs of shutting down unprofitable offices, or where it cannot renegotiate a more favourable rent.
Shares in London-listed IWG, formerly known as Regus, fell almost 9 per cent on the announcement on Tuesday.
“It’s the most difficult period I’ve experienced in 30 years, no question,” said Mr Dixon.
Rents from tenant companies have been hit, and in some cases IWG has stepped in to help support struggling customers. Circumstances were unlikely to improve in the third quarter of the year. “Clearly there will be a lot of bankruptcies,” said Mr Dixon.
Like its co-working rival WeWork, the company leases office space long-term and divides it into units that it rents out on a shorter term. That model has been called into question by coronavirus, which has left offices empty and raised concerns about sharing space.
But the outlook for IWG is more positive than that of its rival, said Michael Donnelly, an analyst at Investec. “Look at where WeWork is around the planet: New York, London, these are the places you don’t want to be. IWG has always been regional, in commuter towns. Deliberate or not — they have ended with an estate right where they want it.”
IWG has more than 3,300 offices around the world, with the Americas its largest market.
IWG’s revenues were “surprisingly good” considering that “three months ago the consensus was that the office is dead”, he said. “Revenue in May and June has held up really strongly — that’s what we’re all looking for.”
Over the half year, revenues increased modestly, from £1.28bn to £1.32bn.
IWG has not deployed any of the £320m expansion fund it raised in May, according to Mr Dixon. But the opportunities to pick up distressed assets were piling up, he added.
The company is also taking advantage of the retrenchment of WeWork, which is reviewing its leases in cities including Hong Kong and London. IWG moved into a Hong Kong office vacated by WeWork in June.
“If our peers started this crisis losing money, and they are concentrated in city centres without a network, it’s gong to be very difficult for them,” said Mr Dixon.