Switzerland-based International Workplace Group offered co-working space before it was cool.
The company, formerly known as Regus, started offering flexible office space 30 years ago, decades before WeWork rose to prominence. Now, with WeWork struggling, potentially casting a pall over the entire co-working industry, IWG isn’t pulling back. In fact, it is growing even faster.
The publicly-traded company is investing in Spaces, its WeWork competitor, across the world and in Seattle. IWG opened the first Spaces Seattle location in the Pioneer Square neighborhood earlier this year, with two more coming over the next few months. The company is holding an event in Seattle today to introduce itself to the community.
Spaces looks a lot like WeWork, with a few key differences that IWG hopes will lure growing tech startups. Spaces doesn’t serve alcohol at its offices, and it aims to offer companies a greater degree of privacy to help them be more productive.
WeWork’s struggles began earlier this year when it was preparing to go public. It disclosed troubling financial information and reports detailing behavior of its founder Adam Neumann sullied the company’s reputation among investors.
The once high-flying startup shelved its IPO; forced Neumann to step down; and is reportedly preparing to lay off thousands of employees. Reports surfaced earlier this week that the company is talking to T-Mobile CEO John Legere about taking over as WeWork’s chief executive.
Despite these struggles, WeWork has done more for the co-working business than any other company by bringing the concept into the mainstream, said Lance Gardner, IWG’s area vice president of sales for the Northwest, And while WeWork’s struggles are a setback for the industry, more landlords and companies are open to co-working than they used to be.
“It’s our answer to the demand for more open, collaborative space that caters to high tech and innovators,” Gardner said of Spaces.
IWG remains bullish on co-working. Gardner expects competitors to rise up to fill any void that could come with a WeWork slowdown. IWG, with more than 3,500 locations around the globe, is poised to pick up any slack from WeWork.
“We’ve been doing this for 30 years, and we’re one of few in the industry that have found a way to make it profitable,” Gardner said.
IWG differs from WeWork because it earns more revenue from selling services such as office staff and tech support, The New York Times reported last month, and also operates via partnership with landlords. Shares of IWG are up more than 60 percent this year.
“We are getting 28 percent of our revenue from services,” IWG CEO Mark Dixon told the NYT. “WeWork only had 5 percent of revenue from services. It’d be like having a hotel where you give all the food and drink away, and room service is free. You might have a full hotel, but you just cannot make any money.”
WeWork is trying to justify its $47B tech-company valuation, lest you wonder why it's not valued like IWG, its much less expensive, bigger (real estate) competitor https://t.co/hzMg683zNv pic.twitter.com/va0q3eYWkG
— Rani Molla (@ranimolla) August 14, 2019
The Regus brand still exists under IWG, offering more traditional flexible office space, with a lot of separate offices for groups of one to 10 people. It caters to the executive who wants a water view from the 40th floor of a skyscraper, Gardner said. Regus filed for bankruptcy protection back in 2003.
IWG is no stranger to Seattle. Between Regus and Spaces, the company has 21 locations throughout the region. WeWork has 22 opened and announced locations in the Seattle area.
There are five Spaces locations in Vancouver B.C., in addition to “dozens” of Regus offices. IWG also has a Spaces location in Portland, Ore.
Overall, there are more than 300 Spaces locations across the globe. Top U.S. markets include New York, with 11 locations, and Los Angeles with nine.
A recent report from real estate giant CBRE named Seattle the second-fastest growing flexible office space market in the nation. More than 1 million square feet of new flex space came online in the Seattle area in the last year, an annual spike of 67 percent, per CBRE. Only Salt Lake City, with 83 percent annual growth, saw a faster increase in the spread of co-working space.
Companies of all sizes like flexible space right now because shorter leases allow them to expand or contract rapidly if needed. Thanks to rapid growth of giants such as Amazon, Facebook and Google, the Seattle region is short on big blocks of real estate. Leasing space in a co-working office gives companies looking to grow a temporary stopgap until more permanent space comes available.
“Tightening market conditions in Seattle and Bellevue’s downtown core are complicating expansion plans and making the flexibility of shorter-term leases more attractive to office tenants, especially those seeking large blocks of space,” said Colin Yasukochi, CBRE’s senior director of research and analysis. “This trend will likely continue as tech companies further expand in Puget Sound to take advantage of the high-quality labor pool.”
Spaces’ first Seattle location is a 55,000-square-foot office at 95 S. Jackson St. in the Pioneer Square neighborhood. It plans to take all 31,000 square feet of the Old Spaghetti Factory along the Seattle waterfront. And it secured a 90,000-square-foot location in the 2+U downtown office tower that will also be home to Qualtrics, Dropbox, Indeed, and others.
Between its current location, and future offices, Spaces’ Seattle footprint totals 175,000 square feet. Gardner hinted that the company is looking for space in nearby Bellevue, Wash., with ongoing lease negotiations for a “very large site” but wouldn’t give specifics.
Spaces’ growth in Seattle echoes its expansion across the globe. IWG isn’t fazed by WeWork’s struggles and shows no signs of slowing down.
“While others in our industry are pulling back the reins, we are actually continuing to accelerate,” Gardner said.