Aside from the fundamental debate over new working styles, flexible office operator IWG has cautioned over the post-pandemic revival of office markets.
The debate over the scale and pace of eventual return to offices continues, with many corporate figures – and particularly those in office property – insisting that the new normal will look largely like the old normal. But hotels are eyeing up opportunities from blended work styles, alongside traditional serviced operators.
At IWG, the trading update was a warning more about the pace of return, rather than its ultimate scale: “Whilst we have continued to see strong recovery in some of our markets since our first quarter trading update, including positive occupancy momentum in the US, the overall improvement in occupancy across the whole group has been lower than previously anticipated… this will delay the anticipated recovery in our business and, given the operational gearing of the group, is expected to have a significant impact on the group’s results for 2021.”
Despite the downside warning, IWG said that it was still seeing “unprecedented demand” from corporates keen to move staff to hybrid working. “We have a very strong pipeline of potential partners wanting to work with us to grow the platform.” It also promised updates in due course on positive negotiations regarding further franchise partnerships.
IWG has been signing franchise deals in the London suburbs, to take account of changing demand for flexible office space around the UK capital. The group recently revealed it has signed 15 new sites in the north, south and east of the city, signing long term agreements with local business people, some of whom are new to the flexible office world.
“The past year has seen the entire world take on the largest flexible working experiment and now, people want to hold on to the best parts of working close to home,” said Julian Chambers, head of franchise at IWG. “Gone are the days when professionals wouldn’t bat an eyelid at a two-hour commute during rush hour. What we are seeing is a permanent shift to how and where we work.”
“The demand for flexible workspaces shows no signs of slowing, not just in London but across the UK. There’s a huge opportunity for franchise investors to tap into this and be a part of the remote working revolution.”
Hotels, too, are pondering how to adapt to the change in working habits. Speaking at a recent JLL webinar, IHG CEO Keith Barr said the pandemic has forced the company to shake up its own attitudes to workspace. “We’re not at our best working from home,” he insisted, noting that the younger members of IHG’s teams are the ones keenest to get back to the office. “Historically we designed our offices as one size fits all,” but that is no longer the approach, as the group builds a series of engaging social spaces into its head office.
Last autumn, agent Colliers suggested in a report that an office and co-working offer could lift hotel revenues by up to 20%. “This is about offering day-to-day flexibility for renting workplaces, a hospitality-first experience with personal and high-quality service and an inspiring and dynamic environment with international appeal,” said Colliers’ head of workspace innovation, Harold Coenders.
IHG is also continuing to adapt its hotels. Barr pointed to three initiatives his group had initiated pre-pandemic, which acknowledge the changing demands from guests, and seek to enliven previously dead space within properties. This started with the Holiday Inn open lobby, which has been a success. “We then took that to Crowne Plaza, asking how do you make that space work during the day?” New brand Atwell Suites is also aimed at making its lobby space a functional shared workspace for long stay guests.
“We’re rethinking our hotels and our offices, and that’s a trend that’s going to accelerate. We’re getting rid of the beige-ness of hotel brands.” He promised smaller rooms, but bigger social spaces.
At Hoxton, the Accor group boutique hotel brand, the company has revealed it will include workspaces in its new hotels. Its Working From_ co-working brand, run first in its London hotels, is rolling out to its Brussels hotels and will be included in upcoming openings in cities including Barcelona, Berlin, and Vienna.
WeWork, the trendy would-be rival to Regus in the flexible working space, recently revealed first quarter performance details, as the company opens up its business to scrutiny ahead of a planned SPAC listing. The company posted a USD2.062bn headline loss, as it rolled in USD494m of restructuring costs, and USD299m of liabilities from exiting property contracts. Adjusted ebitda losses came in at USD446m.
Total revenues for the quarter were USD598m, down 10% on the previous quarter. The company now operates from 774 locations in 38 countries, which house 963,000 workstations and support 490,000 memberships – the latter figure being down 200,000 year-on-year.
The company has focused on driving business from larger companies, rather than single freelancers, and its enterprise membership sits at 51%, with an average contract commitment of 27 months.
The company said it sees sales volumes accelerating: “March represented the first month where the Company achieved both positive net desk sales and positive net membership gains since February 2020. The sales strength we saw throughout Q1 has continued into April and May, with 28 of WeWork’s 112 total markets over 60% physical occupancy in April. Tour volume also returned to pre-pandemic levels.”
WeWork is now looking to grow using asset-light techniques. It has already franchised in India, China and Israel, and is now pursuing a similar route for adding locations in South America.
The company finished the quarter with USD2.2bn in cash and commitments, and aims to pull in a further USD1.3bn when the SPAC transaction is completed.
HA Perspective [by Andrew Sangster]: The pace of the recovery in the office market is critical to the pace of the recovery in business travel. Thus, IWG reporting that recovery is slower than expected is disappointing.
But it seems clear that a strong recovery is coming. In China, occupancy for IWG is already above 2019 levels. And in the US, where pandemic restrictions are lifted, recovery has been rapid.
The key issue is lockdown restrictions rather than any subdued appetite to take space. There are changes in the nature of the demand – a desire for more flexibility and in particular hybrid working – but it is a case of when, not if, workers return to offices. IWG said: “The Board’s expectations for a strong recovery in 2022 are broadly unchanged.”
This looks to be good news for urban and possibly suburban hotels as they gear up to cater for these more nomadic workers.