IWG is setting aside a further £160m to cover the cost of ditching millions of square feet of office space, as a second wave of coronavirus keeps employees at home and delays a recovery for the world’s largest flexible working company.
Office occupancy rates have plummeted over the past year, denting rental incomes. That has been a particular challenge for operators in the flexible or co-working market — such as IWG and rival WeWork — whose tenants have relatively short leases and can therefore leave more easily.
IWG, which operates more than 3,000 workspaces globally, said on Wednesday that it could close more than 100 unprofitable offices. The cuts are of similar scale to those announced in August, when the company committed to shutting roughly 120 premises, or 4 per cent of its 64m sq ft office portfolio.
“It’s a very difficult situation, but we have to manage the costs or close centres,” said Mark Dixon, chief executive of IWG.
The company has set aside £160m to cover costs, adding to the £156m it set aside in August to deal with the previous round of closures and the wider impact of coronavirus.
Mr Dixon stressed that the £160m provision was “for future closures, not necessarily for closures we are going to do tomorrow”.
Closing struggling offices is what IWG “has always done to protect profitability”, said Michael Donnelly, an analyst at Investec. “Over the past year they have just done so very aggressively,” he added.
Shares in the company were down as much as 6 per cent on Wednesday’s announcement, to 316 pence, before rebounding.
As well as shutting offices, the company, which takes long leases on properties and then lets out space to individual businesses, has negotiated hard with its landlords to secure more favourable terms.
IWG declared its Jersey-based subsidiary Regus insolvent last year, dissolving almost 800 lease guarantees in the process, as it sought to extract rent reductions from landlords.
The office closures reflect short-term pain in the flexible offices sector, as employees work from home and businesses look to escape leases. Mr Dixon confirmed that IWG had set aside about £100m to cover rent deferrals and other costs related to struggling tenants.
Mr Donnelly said IWG was better placed to navigate the pandemic crisis than its rivals. “[IWG] has got over £1bn in liquidity, and an ability to take advantage of [a recovery]. If you think it’s a tough environment for IWG, can you imagine how much tougher it is for WeWork, after a failed initial public offering and having jettisoned their chief executive?”
WeWork, which at one point carried a valuation $47bn, aborted a planned market listing and removed founder Adam Neumann as its chief executive in 2019.
IWG is due to announce its full-year results on March 9, and said revenues for 2020 would be approximately £2.45bn, down from £2.65bn a year earlier. Net debt would be about £350m, up from £294m in 2019, it said.