IWG chief says ‘worst is behind us’ as office market rebounds

The global office market has hit “the bottom of the trough” caused by coronavirus, according to the chief executive of the world’s largest serviced office company.

IWG described the past three months as its “most challenging quarter”, after occupancy of the company’s 3,300 global offices tumbled during the pandemic and it moved to ditch hundreds of underperforming sites.

Revenues slumped 21 per cent from last year’s record high to £528m and occupancy levels were at 66 per cent, down from 75 per cent a year earlier, IWG said in an update on Tuesday.

But the period also marked an “inflection point” in the pandemic, said the company, with occupancy beginning to pick up in March and April.

“It looks like the worst is behind us. We can see improving markets — not across the board, but in a number of areas,” said Mark Dixon, IWG’s longstanding chief executive.

Like rival WeWork, IWG does not own its office buildings, but leases them from landlords, divides the space and lets it out on shorter term, flexible contracts to a variety of companies.

The recovery in office occupation has been uneven across the company’s portfolio. The strongest rebound had been outside of dense city-centre office clusters, said Dixon, a trend he expected to continue even after the effects of the pandemic subsided. 

Offices in London suburbs and the commuter belt, and southern states of the US, including Florida and Texas, have recovered far faster than those in London or New York, said Dixon. 

The pandemic has demonstrated that people do not need to work from a fixed office, freeing them to relocate for cheaper housing, lower tax regimes or more open space, he added.

IWG hopes there will be more hybrid working in the post-coronavirus world, and is one of the leading proponents of the “hub and spoke” model of working, in which companies sign a lease on one main location and use a series of satellite offices closer to where their employees live.

“As we leave the first quarter of 2021, we are well-positioned for a world of work permanently altered by the pandemic,” said IWG.

IWG is aiming to increase revenues as it emerges from the pandemic via franchise agreements with local partners, under which other companies operate the offices while paying a fee to IWG for the use of its brand. IWG said it was close to signing several such deals.

A large franchise deal was likely to boost the company’s share price, which has recovered from 160p in March last year to 357p but remains 24 per cent below pre-pandemic highs, according to Michael Donnelly, an analyst at Investec.