Real Estate

WeWork’s biggest rival seeks to double growth


WeWork’s largest rival wants to double its growth rate even as the US-based shared office provider grapples with the aftermath of a failed IPO process and a potential cash crunch.

Mark Dixon, chief executive of London-listed IWG said: “It’s about being everywhere — every town, every village . . . We’ve been growing [revenues] at about 12 per cent, 14 per cent. The objective is to double that growth.”

The ramping up of IWG’s expansion comes after WeWork, which had expanded rapidly in recent years to become the largest private tenant in London and New York, cancelled its IPO and demoted its chief executive Adam Neumann, leaving the company facing “uncertain liquidity”, according to rating agency Fitch.

While both companies have similar numbers of desks worldwide, WeWork is heavily loss making while IWG is profitable. Mr Dixon said the model behind WeWork’s main business was flawed, with not enough emphasis on income from other services such as conference rooms and telephone answering.

“Essentially, the space is a break-even business and the profit comes from the services,” he said. “It’s like running a hotel and giving away the room service and having a free bar. You will have a very popular hotel but you won’t make any money.”

“In New York, people in the street are talking about [WeWork],” Mr Dixon said: “I’ve heard the word hubris a lot, and I actually looked it up — it’s Greek tragedy and this is certainly a tragedy — [hubris] is overconfidence leading to a defiance of the gods. So this was the god of accounting rules.”

The publication of WeWork’s pre-IPO documents was a turning point in investor confidence in the company, which was criticised for failing to demonstrate a path to profitability. Some analysts accused it of “obfuscation” on key metrics.

Mr Dixon said IWG has tried to spread its offices around, in contrast with WeWork which has focused on prime areas in big cities.

“Our strategy is one of national coverage. We try and avoid concentration of risk,” he said. “It’s important not to have all your eggs in London and Manchester. Customers are not all looking for space there.”

Mr Dixon said the market for shared office space was growing, especially since new accounting rules have moved traditional leases on to company balance sheets. But he predicted consolidation in an industry that has ballooned in the past five years, led by the breakneck growth of WeWork fuelled by investment from Japan’s SoftBank.

IWG, which runs more than 3,300 locations globally, is shifting to a franchising model, where partners take on the risk of leasing buildings but operate them under IWG’s brands. The model resembles hotel businesses such as InterContinental Hotels Group, Mr Dixon said.

Growth at IWG’s Japanese business, which was sold this year for £320m under a franchise agreement, has doubled since that deal, Mr Dixon said. Investors have bought into the franchising idea: IWG’s share price has almost doubled this year to 402.6p.

The 30-year-old business has faced tough periods in the past, however. Its US arm entered bankruptcy protection in 2003 following the tech boom as tenants fled, leaving the company struggling with long lease commitments. It later restructured some leases in the UK after the financial crisis.

“This is a very tough, operational, intense business,” Mr Dixon said. “There are no short-cuts . . . it’s about investing at the right time and place and you’ve got to do that in a very sober way, thinking about the worst thing that could happen.”

“I have empathy with [WeWork],” he added. “Any business that goes through this type of nemesis, it’s very hard.”



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