IWG Explores Three-Way Split Amidst Serviced Office Boom Fueled by Hybrid Work
IWG, a global leader in flexible workspace solutions, is contemplating a significant restructuring, potentially dividing its operations into two or three distinct entities. This strategic consideration comes as the company experiences a surge in demand for serviced offices, largely driven by the widespread adoption of hybrid working models. The move aims to unlock perceived value that the company believes is not fully reflected in its current market capitalization.
Key Takeaways
- IWG is considering a split into two or three separate divisions.
- The company cites a "value gap" between its perceived worth and stock market valuation.
- Hybrid working is significantly boosting demand for serviced office spaces.
- IWG's performance contrasts with loss-making competitors like WeWork.
Strategic Split to Unlock Value
Mark Dixon, CEO and founder of IWG, has expressed that the company's market valuation does not accurately reflect its true worth. He pointed to the recent flotation of WeWork, which, despite being smaller and unprofitable, achieved a significantly higher market capitalization than IWG. Dixon believes that by separating its operations, IWG can better showcase the value of its profitable business model. The proposed divisions could include a leasing company, a technology division focusing on its digital platforms, and a franchising business.
Hybrid Work Fuels Growth
The shift towards hybrid working has been a major catalyst for IWG's recent success. Dixon noted that traditional head offices are becoming "either dead or much smaller" as remote and flexible work arrangements gain traction. This trend has led property owners to partner with IWG, formerly known as Regus, to convert their underutilized spaces into serviced offices. IWG has seen a substantial increase in "capital-light" contracts, where landlords entrust IWG with managing their properties for flexible working.
Last year, IWG secured 462 such contracts, with expectations to surpass this figure this year. The company has also benefited from businesses moving away from long-term leases towards more flexible arrangements. Occupancy rates within IWG's centers have climbed to 73.5% from 68.2% a year prior. This increased demand, coupled with price adjustments to offset rising costs, contributed to record revenues of £3.1 billion in 2022, a 24% increase from 2021.
Financial Performance and Outlook
Despite a statutory pre-tax loss of £105 million in 2022, largely due to increased finance costs and investment in its new workspace booking app, Worka, IWG reported a swing to an operating profit of £147 million. The company is optimistic about the future, with momentum continuing into the current year, showing improvements in revenue, operating profits, occupancy, and pricing. IWG remains the world's largest provider of serviced office space, operating approximately 3,400 centers across 120 countries under brands like Regus and Spaces.
Sources
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The Moveandstay editorial team writes about serviced living, workspaces, and city guides across Asia-Pacific.
