Flexible workspace providers are reformatting their offerings, as the sector resets following the downturn in fortunes of WeWork. While some operators are coming under pressure, others are launching fresh ventures into the space, and established incumbents are preparing for consolidation.
At WeWork, expansion plans are on hold, as office landlords question the risk attached to the company, following the failure of a planned IPO, a financial bailout from backer Softbank, and the departure of the group’s CEO. Five buildings in London, and two in Glasgow, all under offer to become WeWork locations, have been cancelled, according to reports in Property Week.
WeWork is not the only company retrenching. US-based Rocket Space is also understood to be cancelling its London office, the first operation it had launched outside the USA. The offices had been set up in conjunction with landlord RBS, using surplus floors of the bank’s offices in Islington.
But it’s not all doom and gloom. UK brand Spaces has promised five new sites next year, taking its London portfolio to more than 85,000 sq m. New entrants into the market include Yours, a joint venture between agent Knight Frank and flexible office provider Work.Life.
James Nicholson, a partner at Knight Frank, said the market is now moving to a point where more sizeable office occupiers are looking for serviced space. “What’s really noticeable is the number of more mature businesses looking for space in this way. The realisation of direct competition was really pivotal for us.”
At the same time, he says office landlords struggle to deliver support services for tenants – and this presented the Yours opportunity. “We are purely a service provider,” managing marketing, fit-out if requested, and ongoing support – while the occupation contract is agreed on behalf of the landlord. “We give users all the benefits of co-working, but behind their own front door.” Initially, Yours will be sticking to the London market, and expects to sign its first agreements with office landlords in the coming months.
In the hotel sector, Accor has been eyeing flexible working for some time. It set up a joint venture with French construction and property giant Bouygues in 2017, called Nextdoor – renaming it Wojo in 2019. The group has laid out 2022 targets of having 50 major office sites across Europe, supplemented by 1,200 locations based in Accor hotels. The offering will include private offices, meeting rooms and co-working spaces.
In addition, Accor is testing out Mama Works, a complementary brand to its Mama Shelter millennial hotel brand, with four sites currently around France.
In the UK, Village Hotels has just formally rolled out its VWorks flexible office space offer. The co-working space, which the private equity-backed hotel group has been experimenting with through the last year, was created from repurposed space such as bars within the hotels, and will offer permanent desks, co-working space and meeting rooms.
Meanwhile, Regus, which over the last 20 years has grown to become the leading global serviced office brand, has started franchising its operations for the first time. In 2019, Regus parent IWG agreed two master franchise agreements with partner TKP Corporation. In Japan, TKP bought the existing IWG operation for GBP320m, following up with a similar deal for GBP22.7m for the business in Taiwan. TKP has rights to grow IWG’s HQ, Regus and SPACES brands in the territories.
IWG has also signed its first franchise agreements in the UK, with individual deals covering buildings in Cambridgeshire and London. IWG founder Mark Dixon has said his franchise offer is much easier for major landlords, than trying to set up their own operating platforms. “They don’t run their own restaurants or do their own cleaning in their buildings. They get experts in to do that for them. Doing flex on their own is very expensive on the scale they’re doing it.”
Dixon has also predicted further upheaval in the flexible office space during 2020, telling Property Week recently: “Next year is going to be about fundamentals. As more and more companies that followed WeWork get into trouble, there will be more consolidation, and we’ll play our part in that.”
HA Perspective [by Chris Bown]: Just as in the hotel space, there are plenty of ways to manage the operational real estate opportunity in offices. Landlords used to enjoy the comfort of a tenant signing a long term lease – traditionally 25 years – and then simply sitting back and counting the rent. But over the last decade or more, tenants have been unwilling to make such lengthy commitments.
At the same time, Regus, the poster child for serviced offices, spent the last two decades developing its offering, signing leases with landlords and then subletting individual offices on a short term basis. The business nearly died in a previous downturn, as its short term tenants trimmed their space, while those fixed lease commitments kept needing to be paid. Sound familiar? Think of Rezidor, whose leased hotels left them similarly lumbered, through the same period.
Regus parent IWG is now copying the hotel brands, and franchising its model to enable a more asset-light expansion. And the new Yours venture starts to sound a bit like an office version of Interstate, Kew Green or Amaris – taking care of guests, on behalf of a landlord.
KSL, at Village have of course already spotted the crossover, and Accor too is working out how it can deliver a flexible working solution.
Just as with other disruptors such as Oyo, Airbnb and Uber, WeWork has the issue of working out how, and when, it will start actually turning a profit. But there are plenty of ways the flexible workspace model could and will evolve – and it looks like simply subletting large office space is no longer the best solution.