It′s time to face the new reality.

According to The Times, IWG is set to put Jersey-based subsidiary Regus plc into insolvency in a matter of days, dissolving ￡790m of lease guarantees across 500 centers. 

On the recent panel at the Warsaw Prop-tech forum I took part in, I was again astonished at the perception of most players regarding the current market situation and where we will be in 9 months from now.

 https://www.propertyforum.pl/2020/en/panel/4124.html#retransmisja

It′s obvious and understandable that people don′t like to accept the new reality where 30 % of the office spaces will be obsolete, vacancy rates will be above 20 %, valuations will show declining investment values and headline rents will fall to a level we saw last in 2008.

But we can′t close our eyes at the reality lying ahead of us.

Most landlords deny the fact that office utilization is still only between 20 % and 50 % and will most probably remain on this level until a vaccination is found in 2022. According to Anthony Fauci, in a best case scenario, 1 Billion shots will be available by end of 2021 which gives us no chance but to arrange ourselves with social distancing rules for the foreseeable future.

On the contrary some players believe that tenants will come to the conclusion to sign up for more space as they can′t accommodate their work force due to social distancing rules any more in their current scheme. As if the recession does not exist. Brokers who are receiving desperate calls for help, to find tenants for sublease, know it better.

As a consequence most landlords still strictly deny requests from their tenants to pause or give discounts on office rent, with the argument that the use of the office is not restricted and that they need to meet their financial obligations towards the lending banks.

We are living in challenging times where entire industries are disappearing in a couple of months and the ones which want to survive need to adapt their business models. This is not only true for airlines, delivery services and e-commerce, but also for the real estate industry.

Some blame Mark Dixon for his decision and say he is using the COVID situation as an argument to get rid of collaterals. Well it′s true that the Regus brand is old fashioned and most of its locations may not be the most sexy product any more, but I doubt that an entrepreneur with the experience and integrity of Mr. Dixon will make such a decision with a light heartedly. He is aware of the loss of trust he is creating, but maybe he has no chance as to sacrifice an arm to save the life of the other 3.000 locations IWG is operating.

The only reason that comes to my mind, why IWG has come to this decision, is the resistance of landlords to cooperate and work out concepts which would allow Regus to bring back these locations into the profit zone.

70 % of all new leases being signed these days are flex. It′s no rocket science to set up a business plan for flex space and agree on a profit share, which may not meet todays expectations in terms of headline rent, but ensures steady cash flow and the ability for the landlord to incubate new tenants, grow them up and make them regulars for traditional space

Who wins if the space remains empty and after costly refurbishments maybe only find a tenant after 2 – 3 years from now, at a much lower rent ?!

“Effectively change is almost impossible without industry wide collaboration, cooperation and consensus”. Simon Mainwaring

Let′s learn from other industries and start to collaborate!