This week saw flexible workspace company IWG (LSE: IWG) announce it will be taking over new office space in Hong Kong. What’s more interesting, however, is that this office space previously belonged to IWG’s US rival WeWork. WeWork has been struggling since its failed IPO last year.
IWG vs. WeWork
This is the first such move for IWG, but one that has been anticipated for a while. WeWork has dominated headlines compared to its British rival for the past few years. In the runaway tech-valuation atmosphere of Silicon Valley, WeWork commanded a $47bn valuation – despite not making profits.
In a tortoise and the hare scenario, however, IWG has been going slow and steady for many years. Unlike WeWork, IWG runs a franchise model of sorts. Partners take on the risk of leasing space, but operate under the IWG (previously Regus) brand.
Raising money, seeking opportunities
This is the first such takeover of space since IWG announced it would be raising a £315m “war chest” at the end of last month. As part of a strategy to acquire rivals hit by the coronavirus, it is a strong shot across the bow that WeWork was the first target.
The company said it expects there to be a number of opportunities for it to accelerate growth because of the coronavirus. I have to say I agree. While lockdown has been hurting shared office spaces, I think permanent office space will be the one damaged long term.
Though IWG has been hit like everyone else, it has been holding strong comparatively. The company scrapped its dividend, furloughed staff, and deferred new openings. It has pushed for rent deferrals with its landlords, and the board has taken a 50% pay cut. All told, the measures have saved the company £150m.
The new normal
I think the real benefit for IWG though will be the way people work when we are out of lockdown. The forced increase in working from home, I think, could shift the landscape in many companies. There are already a number of firms saying they will not renew their office leases.
In an environment where permanent offices are being used less, flexible workspace may move into its heyday. Working from home and flexible working will almost certainly increase. It’s in everyone’s interest. Employees get to skip a commute and be at home. Employers get to save on office space costs and business travel.
When this is the new normal, companies like IWG and WeWork will be key. Even if people can work from home 100% of the time, there will almost always be certain occasions that require an actual office.
With its share price having already bounced from its low in March, the only question for me is whether the IWG price is still cheap enough to benefit from this. We may have missed the boat on a snap growth stock, but as a longer-term investment, IWG might be the way to go.
