Management agreements boost IWG’s growth
“Capital-light” contracts with landlords are central to the flexible office giant’s growth strategy, which delivered a 25% rise in revenue in the third quarter.
These agreements, also favoured by operators like WeWork, allow IWG to operate spaces on behalf of building owners. As the company said in its Q3 trading update, this involves “a fee structure, no capex spend by IWG and no lease liabilities”.
CEO Mark Dixon said the company was able to “capitalise on the growing pipeline of commercial property owners and landlords seeking to maximise their returns by partnering with IWG”.
IWG completed 252 of these agreements in the first nine months of the year, totalling 90% of all its new agreements. With activity accelerating, it expects to reach its target of 500 agreements by the end of the year and for these to gradually contribute to earnings throughout 2023.
Revenue growth was also driven by improved pricing and occupancy, which rose 650bps year-on-year globally, and asset merger between IWG and Instant Group, the flexible office marketplace, earlier this year.
However, the company warned that full-year earnings will be “towards the lower end” of market expectations despite (£304m-£380m), despite being “cautiously optimistic” about the outlook for the business against a backdrop of inflationary pressures.
Dixon said: “The significant move to hybrid working is driving strong demand for our flexible work products and creating a long-term tailwind for IWG as businesses all over the world respond to the twin effects of economic uncertainty and their employees’ desire to work flexibly.”
Management agreements have become increasingly popular in the last few years thanks to landlords’ need to meet demand for flexible workspace and coworking operators’ need to de-risk their balance sheets.
Agreements with landlords have been a key part of WeWork’s journey towards profitability. The operator has also struck up a partnership with Yardi to provide software for flexible working. In July, the pair launched WeWork Workplace, a “universal platform” that allows users to manage both their privately owned or leased space and any WeWork space they use.
For these companies – and many others in the flex space – the future is less about real estate and more about the services they can provide for our work.