Industrious CEO on Hana, UK expansion and rethinking the flex model

No one said that disrupting the office market would be easy. The Covid-19 pandemic has brought fresh challenges for operators of flexible and co-working office space, throwing business models into question. But for some there is opportunity in the uncertainty – look no further than the fact that one of the biggest flex operators in the US has now gained a foothold in the UK, lining up a takeover of CBRE’s Hana business. New York-based Industrious and agency giant CBRE announced a tie-up this week that will see CBRE take a 40% stake in Industrious. In return, Industrious receives $200m – and Hana, the flexible workspace business CBRE launched in 2019. That gives Industrious, which already runs more than 100 properties in more than 50 markets in the US, new locations in the US and UK, including Hana’s UK portfolio, which includes three sites in London and two soon to open in Manchester at Fore Partnership’s Windmill Green and Barings’ St Peter’s Square. The deal offers eight-year-old Industrious scope for further expansion in the UK and elsewhere in Europe, says founder Jamie Hodari, who adds that the company may well keep the Hana brand. “It’s very hard to launch in new countries,” Hodari tells EG. “It’s an easy way for companies to lose their shirt. And so we have sat on the sidelines in ways that were quite painful at times as far as UK expansion. The opportunity to integrate Hana and to use it as a jumping off point for UK expansion is extraordinarily appealing to us.” Let go of the lease Although less well-known than flex operators with an established UK presence, Industrious has rapidly built scale since opening its first office in 2013. Last year Inc magazine included the business in a ranking of the 500 fastest-growing private companies in the US. Co-founders Hodari and Justin Stewart – childhood neighbours and best friends – had worked in co-working spaces in their respective jobs but found existing offerings lacking. Hodari had founded Kepler, a higher education programme that runs a university campus in Rwanda. Its US office was in an unnamed co-working space and Hodari was hosting a meeting with the president of the Ikea Foundation, which backed Kepler. “It was an incredibly important meeting,” he recalls. “I went to prepare in the conference room of our shared office complex and there were a couple of light bulbs out, the conference room table was sticky and there was a guy rollerblading by. It just didn’t work. I moved the meeting to a [bakery chain] Le Pain Quotidien, and that evening just said: ‘This is pretty painful that I’m paying for an office and it’s not of a level where I would be proud to hold an important meeting’.” Hodari and Stewart have since tried to set themselves apart from other providers not only through the quality of their offices but on their business model. The company has moved away from taking long leases on space and hoping it can fill it with tenants on short contracts. That way of operating, Hodari says, too often means “you’re printing money or you’re at the cliff edge”. Instead, Industrious aims to strike management agreements with landlords to operate in their buildings. “In the very early days of the company, we signed leases with landlords because we were building the brand,” Hodari says. “We didn’t have the operating track record where we could convince landlords that we should be partners with them and that they should be bearing an element of the risk and of the capital expenditure. But by early 2018, we had shifted completely. We have not signed a lease since then.” That shift benefits more than just the landlord/operator business relationship, Hodari says. “To the occupier it is important because when you’re working hand-in-hand with the asset owner, there are a lot of things you can do in terms of integrating the flex operations into the operations of the building itself, making it an amenity to all of the tenants of the building.” Meeting the bar For CBRE, the Industrious deal means that its Hana offering achieves a scale that would have been far tougher to reach through organic growth alone. “It is hard to build a business and innovate within a large organisation [in which] maybe that isn’t the core,” says CBRE’s Andrew Kupiec, who has led Hana and will oversee the agency’s day-to-day relationship with Industrious once the deal is done. Kupiec is quick to highlight that Hana, which CBRE established as a wholly owned subsidiary, “had all the power, mindshare and support from CBRE to build this business organically”. “But the reality is, there’s so much demand and so much opportunity that to accelerate that it made very practical business sense to partner with someone that has a similar approach and has more scale in the market,” he adds. A goal for CBRE has always been to provide customers with “end-to-end services”, Kupiec continues. “In order to do that with a Hana or flex-type business, you really need a pretty large, distributed footprint, hence why we are making this investment.” Ready to take the Hana business forward, Hodari is prepared for growing competition as flex operators that make it through the pandemic slug it out for market share. “The name of the game in V3 of this industry is [showing customers] you are going to get a better employee outcome if you buy this as a service from us than if you do it yourself,” he says. “If you don’t meet that bar, eventually you will be outcompeted in this industry. I think Hana meets that bar.” To send feedback, e-mail tim.burke@egi.co.uk or tweet @_tim_burke or @estatesgazette Photos by Industrious