Published on 28 Oct 2019

IWG’s Dixon: WeWork spent billions trying to take our crown


Mark Dixon walks briskly into the Oxford Street branch of serviced office company Spaces, one of several business that make up IWG, the workspace provider he founded in 1989. “I’ve got a hard finish at 4pm,” he says. “I’m flying to Nice.”

Jet setting is no rarity for Dixon given that IWG‘s six brands have some 3,300 locations across 110 countries, making it one of the world’s largest office companies. But the chief executive’s trip will be to tend to his vineyards, rather than the group’s outlets in Nice. He owns the second largest rosé producer in Provence – “I’m trying to build Napa Valley in the South of France” – and is now seeking to expand his wine estates in the south of England.

A desire to prove himself led Dixon to drop out of school at 16 to start Dial-a-Snack, a business delivering sandwiches by bicycle. “If you start with no money, you put a high value on money,” he says. “It’s a basic thing. Regus [the initial name for IWG and still one of its brands] was my eighth business. As well as vineyards, I also have a farming business. I have cheesemaking and olive oil production, cattle and sheep.”

Don’t let Dixon’s varied ventures suggest that he has become complacent when it comes to his office space empire. While well-publicised troubles at rival WeWork have raised questions about office providers’ business models, Dixon sees his company as firmly in expansion mode. He sees no reason why IWG shouldn’t be able to grow to 40,000 offices globally.

The fact that he is thinking about growth as the wider industry reels is a sign of his confidence in IWG’s offering. And the fact that the company has made it through struggles before and come out the other side – the US arm of Regus entered bankruptcy protection 16 years ago in the aftermath of the dotcom crash – will lead investors to hope lessons have been learned. As of early October, the company’s London-traded shares have almost doubled in value since January.

Global goals

Will woes at WeWork, which has lost its chief executive, shelved a stock market float, and is reported to be planning job cuts, open new possibilities for rivals such as IWG? Dixon’s busy round of press interviews suggests his company sees an opportune time to push out its message. And despite WeWork’s network across 86 cities in 32 countries, Dixon dismisses its worldwide aspirations.

“We are the global market leader in this business – in America, in every country we operate in,” he says. “These guys have spent the best part of $11bn to try and take that crown. But they are not global, that’s the thing. There are clear differences.”

One other such difference is the bottom line. IWG reported an operating profit of £50.6m in the first half of the year, while WeWork had an operating loss of $1.37bn (£1.1bn).

Industry analysts have rushed to point out where WeWork has gone wrong since its IPO fell apart, citing an unsustainable growth trajectory and the out-of-proportion influence of founder and former CEO Adam Neumann.

Dixon’s take on WeWork’s current turmoil zeroes in on one mistake: the company is not charging enough for services it provides in its buildings outside of the lease.

In the end, the space itself is a break-even business and you make the money through lots of value-added services for the customers

“In our business – and I’ve been doing it for 30 years – you can’t make money if you don’t charge properly for services,” he says. “We are making about 27% of our revenue in service income and, according to WeWork’s S1 disclosure [its pre-IPO document] they are doing about 5%. It’s a clear difference. In the end the space itself is a break-even business and you make the money through lots of value-added services for the customers.”

Dixon highlights offerings including workplace disaster recovery contracts, phone answering, virtual secretaries and postal services as potential money spinners for serviced office companies.

He argues that IWG is more sustainable than rivals over the long term and that the company’s latest franchising model offers “a simpler story for investors”. The company is expanding its franchising business, which sees partners run sites using IWG’s brands but without IWG absorbing the full cost or leasing liability. The group aims eventually to operate thousands of centres in the UK through this model.

“We are going to be doing a lot more franchising, particularly in the UK. It’s our most active market,” Dixon says. “The reason for franchising is to accelerate growth. We expect to do more than 2,000 sites in the UK. You can see lots of coffee shop chains like that all over the country. We are well under way with that in the UK. We’ve been growing at 12-15% a year but we should be able to grow at double that through franchising.”

The plan is working elsewhere. On a country basis, IWG has offloaded its Taiwan and Japan operations to franchise partner TKP Corporation. In both cases, TKP has committed to a development plan to add to IWG’s country networks and IWG will provide ongoing services and support to TKP in return for a fee linked to revenues.

Franchising is also on the cards in the US, although Dixon says a separate stock market listing is still an option. “We are always considering how to release value,” he adds. “The US is our biggest business and it is the powerhouse of the whole group. We are running through our franchising programme but one of the alternatives is a separate listing of our US business. But people talking about it now are jumping the gun a bit.”

Landlord relationships

While the franchising strategy is still new, Dixon says the mainstay of the business will remain holding offices in special purpose vehicles.

This type of deal has come in for criticism from industry figures who say such structures allow office space companies to liquidate the SPV and walk away from lease obligations when times get tough.

IWG argues that when it has walked away from leases, it has been because the premises were old fashioned and the group had identified other nearby locations that would be better suited for its newer brands, such as Spaces.

In February, EG reported that a Regus subsidiary had applied for voluntary liquidation in Stockley Park, west London. The firm had leased the 71,000 sq ft Lakeside House office owned by Tritax Property Income Fund. A spokesperson for Tritax said the space has not been relet.

In August, an IWG SPV in Birmingham, which operates its Regus centre at 43 Temple Row, owned by Legal & General, appointed administrators to wind up the company.

How many more difficult discussions are on the horizon? Dixon won’t go into specifics. “That job in the UK is largely done,” he says of the hunt for replacement premises to those held in SPVs. “There are always renewals coming up, it’s just the nature of the business. We have taken the opportunity to renew everything and open new centres.

“If you look at where we are now in Oxford Street, we had two [offices] just here and now we have two different ones. We have upgraded a lot. Some of those centres when we took them over were already quite old then and it is important in a more competitive market to have good quality centres.”

Ultimately, Dixon is not afraid of difficult negotiations with landlords and is confident about IWG’s place in the world. He points to IWG’s recent purchase of members’ club The Clubhouse out of administration as proof that the group has the goodwill of landlords on its side.

“It went bankrupt and we have re-negotiated the leases,” he says. “It plays into the story of whether landlords want to work with us or not – it is evidence they do.”

As the industry shakeout continues, it is unlikely all workspace companies will be able to say the same.