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Mark Dixon, the experienced CEO of IWG, has successfully navigated multiple crises in the past. The rise of remote work poses a significant challenge for the flexible office industry. However, during a positive half-year results presentation, Dixon confidently stated that the opportunity remains just as promising.
The post-pandemic work patterns have revealed the unpredictable nature of mass psychology. While it was expected that offices would reopen, no one could accurately forecast the occupancy levels. Unfortunately, these levels have been lower than anticipated by most employers and landlords. Even Zoom, the US videoconferencing company that thrived during lockdowns, now requires some mandatory in-person attendance.
Big cities are witnessing an overcapacity issue, with as much as 25-30% excess capacity. Major names in the UK banking and professional services sectors are reducing their space requirements by half. The challenge for landlords is upgrading their older office spaces.
Flexible offices present an attractive option for employers who prefer not to commit to long leases. IWG is strategically positioning itself to capitalize on this trend. However, shareholders have heard similar stories in the past. When it was known as Regus and listed over two decades ago, IWG had ambitious plans, but the returns for shareholders have been modest.
The company is projected to break even this year after three consecutive years of losses. Meanwhile, the share price remains near its lowest point in a decade.
A troubling mismatch between long-term lease agreements and short-term tenants has contributed to the ongoing decline of WeWork, a US flexible space group. IWG is mitigating this risk by making adjustments to its business model. It adopts a capital-light approach to new deals, allowing property owners to share tenant exposure. In return, they benefit from IWG’s expertise in cost-effective management of flexible office spaces.
IWG is actively reducing its debt. In the first half of the year, net debt (excluding leases) decreased by £54 million to £658 million, which is approximately 1.5 times the forecasted adjusted EBITDA. When leases are included, the net debt exceeds £6 billion.
Credit is due to IWG for its resilience and determination. However, its track record suggests that it operates in a specialized, defensible niche rather than being poised for significant growth due to the rise of remote work.
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