Prior to the pandemic, there were a number of companies taking large amounts of space in office buildings, the companies were in the co-working industry. The wonderful thing about the internet is if you have a laptop, you can start a company. The challenge is to find paying customers, but you have all the tools to start the company. One of the tools you did not have was the great office place to meet clients. Clients are still reasonably impressed if you have a seemingly solid place to hang your hat or address. Along came companies such as We Work, IWG and others who rented space in office buildings and you could have access to a private office, a board room, the attributes which lead creditability to the permanence of your company. The desire was for people to meet generally downtown, partly for the infrastructure supports and ability to socialize to further your business. The pandemic comes and people started working from home, who needs the office downtown?
In an article by Rachelle Younglai, IWG the world’s largest co-working company is trying to adapt its business model to reduce its exposure to long-term office leases. These co-working places paid the rent on the building and charged their customers rent for the space. The rent varied between the classes of real estate A was the highest and C the lowest and in many cities there was plenty of choice. The problem is the business model needed many short-term subtenants to use the space and with many working for home, the ability to work in the shared spaces is limited, because of the 6 feet of distance. Many of the co-working spaces depended on shared spaces and meeting in board rooms, now there are enhanced software programs to do it on Zoom.
IWG brands include Regus and Spaces has 3,300 locations in 110 countries and anyone can sublease. (a number of years ago working on a political campaign, we used the space and it worked well. We had a office, because you need a office, the use of the boardroom for events and gatherings).
IWG has slashed prices and noted demand in the suburbs has increased, while downtown are facing more immediate challenges or low demand. As companies slowly move back to what was considered normal, the co-working places may be an alternative for the larger companies which downsized there office space needs.
Linking to dividend paying companies, all companies have business models and they work because they are in business and continue to expand because the business model works given how the economy works. When the economy is changed business models have to be changed. It is good IWG is changing its model, as a large player in the industry, they see the demand for their product just not the way it was. Will the business model change again? how will the company tap into the new reality? Fortunately sometimes the large players have larger credit lines to ensure they can get through the changes, but as an investor, you can move to alternatives and watch how the new reality shapes up and then get back into the stock if you desire.
There are more questions than answers, till the next time – to raising questions.