IWG To Shutter More Workspaces Amidst COVID-19 Resurgence
UNITED KINGDOM – The world’s biggest provider of flexible workspaces, IWG, announced on Wednesday that it could cease operating over 100 unprofitable offices, as the 2nd wave of COVID-19 infections prevents staff from returning to their office and stalls the firm’s recovery, reported the Financial Times (FT) on the same day (20 January).
Currently, the company runs more than 3,000 workspaces across the globe. The branch reduction is somewhat similar in scale to that announced last August, when IWG stated that it will close about 120 coworking facilities, or 4 percent of its 64 million sq ft office portfolio.
“It’s a very difficult situation, but we have to manage the costs or close centres,” said the company’s CEO Mark Dixon.
“2020 was the most challenging year ever experienced by the group, and these conditions are likely to persist well into 2021 before we see the environment improving, it has accelerated the shift to a new way of working significantly and we have continued to invest for the future, developing new products and services.”
“Hybrid working has become the new norm and, in our view, is here to stay. IWG is the leading enabler and beneficiary of this trend. We are seeing more enterprises wanting to partner with IWG to benefit from this new way of working.”
The company also revealed that it’s allocating £160 million to cover the expenses of relinquishing millions of sq ft of leased office space, in addition to the £156 million it set aside last August to tackle the previous round of branch closures amidst the health crisis.
Dixon clarified that the £160 million allocation is “for future closures, not necessarily for closures we are going to do tomorrow.”
Occupancy levels of office space, including that of serviced offices and coworking space, have declined sharply in 2020. This has severely impacted coworking space players like IWG and its rival WeWork, whose occupants can easily leave due to shorter leases.
The closures indicate trouble for the coworking sector, as staff work remotely and companies consider exiting leases amidst the pandemic. Dixon also verified that they have allocated around £100 million to tackle rent deferrals and other expenses arising from struggling tenants.
Investec analyst Michael Donnelly noted that IWG is closing struggling offices “to protect profitability. Over the past year they have just done so very aggressively.”
Due to the impact of the pandemic, IWG has negotiated hard with property owners from whom it has leased office space on a long-term basis. In fact, its Jersey-based subsidiary Regus was declared insolvent in 2020, leading to the termination of nearly 800 lease guarantees in a bid to compel landlords to acquiesce to rental reductions.
Still, Donnelly thinks that IWG is in a better position to face the COVID-19 health crisis than its competitors. It “has got over £1 billion in liquidity, and an ability to take advantage of (a rebound). If you think it’s a tough environment for IWG, can you imagine how much tougher it is for WeWork, after a failed initial public offering and having jettisoned their chief executive?”
IWG, which is set to announce its annual financial results on 9 March, stated that revenue fell from £2.65 billion in 2019 to £2.45 billion in 2020. At the same time, its net debt rose from £294 million to roughly £350 million.
