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November 13, 2023 Deal Watch

Coworking giant IWG eyes major CT expansion

PHOTO | COSTAR IWG currently operates a “Spaces” coworking location in West Hartford’s Blue Back Square (shown above). IWG will be opening at least 10 new Connecticut coworking sites in 2024.
Learn more about IWG’s brands in CT
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Coworking space was dealt a blow during the pandemic as office workers retreated to their homes amid heightened public health concerns.

But, as more people return to work, at least for a few days a week, one of the world’s largest coworking providers is eyeing aggressive expansion in Connecticut.

Switzerland-based International Workplace Group, or IWG, is the parent company of various coworking brands, including Regus, HQ and Spaces. It currently has 16 workspace sharing locations throughout Connecticut, including in downtown Hartford, New Haven, Windsor, Rocky Hill, Berlin and West Hartford.

By the end of next year, IWG plans to nearly double its Connecticut footprint to about 30 total locations, said Ken Godek, the company’s Northeast area vice president.

It already has signed agreements to open 10 new Connecticut sites during the first half of 2024, in Middletown, Farmington, New Britain, New London, Hamden, Wallingford, North Haven, Willimantic and Stamford.

Driving the expansion, Godek said, is IWG’s refreshed business model and society’s continued embrace of hybrid work.

“Not everyone can work from home,” Godek said. Many professionals face work-from-home challenges such as internet bandwidth issues, children at home, pets barking in the background, or are just in need of some social interaction.

IWG’s coworking sites revolve around individuals or companies renting workspace as needed in fully equipped and furnished settings, complete with Wi-Fi, office technology, and even sometimes coffee bars, with restaurants and shopping nearby.

IWG’s expansion, Godek said, is also meeting growing demand for suburban workspaces for those who may not want to commute into cities. Meanwhile, some workers like the choice of working from various locations, and many professionals might choose to work in different offices that are closer to certain clients or colleagues, he said.

“Most of what we’re adding on right now is actually in that suburban market … and nationally, we’re looking at going into a lot of rural areas,” Godek said.

International growth

IWG got its start more than 30 years ago, after founder Mark Dixon noticed business people in Europe holding meetings in local coffee shops.

It piqued his interest in launching a company that offered flexible short- and long-term workspaces.

The company, originally founded as Regus, expanded significantly and faced its share of challenges over the years. It eventually changed its name to IWG, which serves as the parent company to a number of coworking brands.

Three of them — Regus, Spaces and HQ — currently operate in the state. The majority of the company’s new Connecticut sites will be Regus locations. Spaces will open a location in Wallingford, while HQ will open in Willimantic, Godek said.

IWG’s Nutmeg State expansion is part of a broader international growth effort. Globally, IWG opened 400 new locations during the first half of 2023.

“... We are seeing fast-growing numbers of businesses across the world adopt and reap the benefits of a model that involves employees working from home for a day or two each week, alongside collaborative time spent at a nearby flexible workspace and the occasional visit to corporate HQ,” Dixon said in IWG’s midyear earnings report. “If it was the pandemic that initially lit the fuse, technology is the fuel that’s now propelling the uptake of hybrid working to levels that very few predicted just two or three years ago.”

IWG now counts more than 4,000 shared workspace locations worldwide used by 8 million-plus people in 120 countries.

In the U.S., it has 1,100 locations, including about 70 within its Northeast division, Godek said.

During the first six months of 2023, IWG, which is publicly traded on the London Stock Exchange, reported record revenues of over $2 billion and a significant spike in profits.

‘Capital light’

IWG’s expansion is being driven by a new “capital-light” strategy.

The company has shifted its focus away from owning leases or property. Instead, IWG signs partnership agreements with landlords and helps them run their empty space.

IWG then shares a percentage of the building’s profits with the landlord.

Robert H. Motley, senior director at real estate services firm Cushman Wakefield, connected IWG with its new site in Hamden.

He said this new model benefits both the landlord, who can fill “stranded” or long-empty office buildings, and IWG, which has an abundance of inventory from which to choose.

The new partnership models are based on the landlord outfitting the space for IWG’s various brands. That translates into significant capital savings for IWG, Motley said.

“IWG is basically coming into existing office space that already has a lot of what they need, and not going into raw, brand-new space that needs major overhauling, which is very costly,” Motley said. “And this new partnership only works when you have office space that’s been empty for protracted periods of time.”

IWG has plenty of empty office space to choose from in Connecticut and Greater Hartford, which posted a 29.8% office availability rate at the end of the third quarter of 2023, with 7.3 million square feet of vacant space, according to brokerage firm CBRE.

Evaluating needs

Godek said IWG locations cater to a spectrum of clients, from one-time or drop-in guests to long-term contracts for companies or single professionals.

“We’ve seen a huge uptick in people who are one-offs,” and just need to get out of their home, Godek said. Some clients get stipends from their companies, or pay out of pocket for the shared office spaces, and the centers offer anything from desk space to conference rooms.

The company also serves as swing space, if a company needs a temporary site or is downsizing, or for start-up businesses that don’t yet have dedicated office space.

Paying month-to-month for office space is becoming more attractive to companies as they continue to adapt to a new workforce and evaluate their space and service needs, Godek said.

The Northeast is a prime market for growth, he added, mainly due to its proximity to major cities, and clients enjoying the flexibility of working at different, yet nearby locations.

“We are rapidly growing and expanding our portfolio and footprint in Connecticut, especially the Hartford area. We have a large uptick in suburban demand and are able to accommodate all work styles,” Godek said.

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