Flexible Workplace Giant Taking on WeWork by Franchising Expansion
While coworking firm WeWork wants to fuel more expansion by tapping Wall Street with a public stock offering, rival Regus is taking a decidedly different course toward growth: franchising.
The flexible space provider owned by Luxembourg-based International Workplace Group, or IWG, recently sold 130 Regus centers in Japan to Tokyo-based meeting room company TKP Corp. for about $400 million in a franchise deal. And last year, the company signed up its first U.K. franchisee.
Darin Harris, IWG North America CEO, said in a statement the company is now pursuing the franchise course in the U.S. to address a rapidly growing demand for flexible office space.
“Since 2010, the flexible workspace sector has grown at an average annual rate of 25%, and by 2020, it’s estimated that 50% of all workers will be remote most of the time,” Harris said. “This dramatic shift in the office space market is creating a demand for more flexible space options and forcing building owners to adapt.”
A recent report from CBRE showed that such space accounts for 2% of total office inventory, or 4 billion square feet in 54 major U.S. cities. CBRE projects the number to grow to 5% of all office space. A report from JLL estimated that flexible office space could grow to 30% of the office market by 2030.
Regus has been around for three decades and basically launched the concept of shared offices with “executive suites.” According to CoStar data, the company occupies close to 17 million square feet around the U.S.
WeWork launched in 2010 shortly after the recession and has grown with the economy. It now has 18.8 million square feet in the U.S., CoStar data shows. Most of the company's growth has been in urban areas in the biggest office markets.
A report this year from Colliers International shows that WeWork occupies 12.1 million square feet in the 19 cities tracked, compared to Regus’ 4.7 million square feet. Spaces, a coworking company Regus bought in 2015, has 835,000 square feet.
Regus is targeting aggressive franchise development in California, Florida, Texas, Illinois and the Northeast, particularly D.C., Pennsylvania and Virginia.
It’s not the first to franchise coworking. Colorado-based Office Evolution has been doing it for 16 years, focusing on suburban areas. Rye, New York-based Serendipity Labs launched in 2011 and has pursued a franchise model as well. The company sets up a corporate-owned urban location and franchisees expand in the suburbs.
Serendipity Labs founder John Arenas was once a Regus executive. Arenas has said the company is in the hospitality business in that it provides workspace, club and event space, functions along the lines of what you’d find in a hotel.
“We built our brand around the concept of hospitality, and most of our executive teams, our locations, and many of our franchisees either operated or are currently operating hotels,” he told online publication Allwork.Space, which focuses on the coworking industry.
Regus touts its franchises as an “excellent addition” to a franchisee who already has a portfolio of restaurants and hotels. Whoever chooses to pursue a Regus franchise needs to be ready to open a minimum of five locations of at least 10,000 square feet each. Initial investment ranges from $650,000 to $1.7 million per location with at $50,000 initial franchise fee, according to the company.
One of the company's key selling points for the concept is that franchisees can tap a network of 2.5 million customers, which include technology companies Amazon, Uber, Verizon and others.
