Co-Working Giants Turn to Franchising Model in Era of Remote Work

Co-working space providers see light at the end of the tunnel, despite the stop-start return to offices.

IWG (International Workplace Group) posted revenue of $1.4 billion for the first half of 2021, and a profit of $722 million on an adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] basis.

The results are down on the $950 profit in the same period of 2020, but the UK-headquartered company is confident franchising will lead to growth after the pandemic.

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Rather than directly lease buildings, IWG can lend its brand cachet, with names like Regus and Spaces and their respective technology platforms, to other real estate companies or buildings. It represents a quicker route to new countries, leaning on local expertise.

WeWork Menachem Begin Tel Aviv. Picture: WeWork

It added 17 new franchise agreements across 10 countries for the six months ended June 30, with an additional 64 committed locations, according to its interim first-half results. It also added its first franchise agreements in the U.S., and entered into a joint venture with Hysan to operate across Hong Kong and the Greater Bay Area (Hong Kong, Macau and Guangdong).

“We continue to make progress with our franchising and partnering agreements which are central to our capital-light expansion strategy,” said CEO Mark Dixon.

In Europe, the Middle East and Africa, new franchise locations, management agreements and acquisitions have been “progressively accelerating” with 51 new locations added. It now has 1,123 in the region.

WeWork likes the idea of an asset-light model too. Some 70 percent of its new spaces in the future will be under revenue-sharing deals or other arrangements that avoid leases.

It franchised its existing business in Israel, across 13 locations, in April after signing an agreement with Ampa Real Estate, which secured the exclusive right to operate WeWork Israel. And in May it began a joint venture with SoftBank Latin America Fund, which now operates the WeWork brand in Argentina, Brazil, Chile, Colombia and Mexico.

Getting the Branding Right

As well as franchises, we can expect to see more design and customization of workspaces, as co-working providers get closer to their customers, to help inspire their employees.

There are already those mega-deals in place. IWG signed up Japan’s NTT earlier this year, giving its 300,000 employees workspace access. And WeWork offices are used by Amazon, with the associated branding, but it’s going to go deeper than signs above the check-in desk.

WeWork has already worked on experimental design concepts with some of its clients, particularly in the fintech sector, but they choose not to disclose the fact they use WeWork offices. Some organizations, despite having their own offices, will also locate certain divisions, such as their innovation teams, into more relatively more interesting co-working spaces, according to Hugh Batley, co-founder of corporate travel agency TruTrip, citing superapp Grab opting for WeWork, and FoodPanda with JustCo.

TruTrip is also now offering desk space on top of travel. “We have workspace options built into our platform to give companies more options when thinking about where to base themselves when they travel,” he said.

Co-working could soon start to follow in the footsteps of the hotel sector, where luxury and lifestyle properties are the industry’s new battlefield for growth. IHG, for example, is planning a new high-end brand. Is diversification the key?

As well as customization, the smaller co-working providers that struggled in the pandemic may inadvertently be fuelling the larger players’ growth. IWG’s Dixon said “significant progress” was made buying up competitor centers with minimal required investment in the first half of the year.

“Small flexible office players probably had a hard time surviving Covid,” said Jean-Baptiste Pimenta de Miranda, founder of Flydesk. But in the mid to long-term, he expects the co-working and serviced office market to grow at a tremendous pace because companies won’t renew their traditional office lease with one desk per employee.

“They will opt for more a more flexible office setup with less commitment and fewer hidden fees. Even large companies will start to look for options in those flex workspaces,” he added.

Sidenotes

Travel and the thorny topic of vaccinations are becoming more intertwined by the day. At the start of the pandemic, tourism as a sector was one of the casualties. Now new stories are emerging, with themes of vaccine equity, and travel companies  putting in place mandatory jab rules for staff. But at the same time, the travel industry has a chance to speed things along, at a time when some demographics are reluctant to get protected.

In the UK, ride-hailing and food delivery apps offer discounted travel and meals to people who are vaccinated, according to reports. Meanwhile, mobility platform Free Now, the joint venture between BMW and Daimler Mobility, is offering $1.3 million in free trips to vaccination centers in the UK until the end of September.

“The UK is back up and running thanks to the vaccine, but there’s still a way to go,” the company said as part of its JabCab campaign.

Hotels hosted critical workers at the start of the crisis, and more recently turned into quarantine centers at various airports. But in the race to sign up more people to have vaccinations, could they be launching their own promotions? Discounts for newly vaccinated guests under certain ages? Spa treatment vouchers as incentives?

Or should online travel agencies like Expedia and Booking.com step in? At such a large scale, ethical questions will inevitably arise, but it’s also a means to remind many people of what they’ve been missing out on for the past 18 months.

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Virgin Atlantic Hires Corp Travel Specialist for New Sales Role

Virgin Atlantic has recruited corporate travel expert Tom Maynard as its new director of UK sales and global accounts. He joins from Advito, BCD Travel’s consulting arm, and has also worked for consultancy McKinsey & Co, where he was global travel manager, procurement. Maynard replaces Rami El-Dahshan, who recently left to become head of clubhouses at the airline.

Correction: The article originally said 70 percent of WeWork’s new spaces were on a franchise, management or revenue share model. WeWork has also had a presence in Israel since 2014, which it has now franchised.  

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