The EG Interview: IWG’s Dixon on agreeing to disagree

Mark Dixon is no stranger to a crisis. In the three decades since founding flexible workspace company IWG, he has expanded the business into 110 countries and 1,200 cities, weathering civil wars, volcanic eruptions and terrorist attacks along the way. Nonetheless, little prepared him for Covid-19. “I’ve been to hell and back a few times,” he says. “But with this one, I could see that it was going to be something significant.” The damage has been striking. London-listed IWG lost two-thirds of its market value in a matter of weeks in March last year, a plunge that put it on a par with airlines and cruise operators. The global shift to remote working eventually drove IWG to an annual loss of £650m. “We had a terrible year financially, but the business itself has been unbelievably resilient because it had been set up that way. It was built to last,” Dixon says. Dixon’s confidence is well-known. Still, all eyes are now on IWG and other providers of flexible office space as they attempt to manoeuvre through the pandemic and what might come next. As the sector has grown it has often been painted as the great disruptor of traditional workplace leasing. But Covid has now disrupted all parts of the market, and flex is suffering too. WeWork continues to lose money hand over fist. Companies including The Argyll Club and Knotel have run into financial trouble. And as IWG’s approach to handling the crisis has shown, it is tough to avoid someone, somewhere, feeling they’ve been ripped off. Other flex industry executives point to Dixon’s experiences as a benefit. IWG is arguably the only flex operator that has genuinely survived past downturns, they say. When Dixon founded the company, then Regus, a little after his 30th birthday, the Essex-born entrepreneur had already started his own sandwich delivery business as a teenager, worked as a lumberjack in Canada and as a miner in Australia. He set up the office business in Brussels, turning over a few million a year initially. Now it has 3,300 buildings worldwide and, in normal times, brought in an annual revenue of £2.5bn. “The key thing I have learned going through crises is to act decisively, communicate well and act early,” he says. During the pandemic, that has involved slashing directors’ salaries in half, cancelling its dividend to shareholders and renegotiating hundreds of leases. By the end of the financial year, it had also shut down one in 20 offices in a slimming down operation (though others have since opened). “We did all that, then hunkered down early on and prepared for the worst while hoping for the best.” Strong-arming or negotiating? The response was decisive, but elements of it angered many in the real estate world. IWG, which takes long leases on properties before subletting them as flexible office space, holds many of its contracts in subsidiaries that can be put into administration when times are tough, the threat of which can be used to encourage landlords to cut deals or reduce rents. Last year, it did just that to its Jersey-registered subsidiary, which still operates under the Regus name, in effect freeing the company from its obligations on about 500 leases worth more than £790m. Approximately 65 of them were in the UK. Melanie Leech, chief executive of the British Property Federation, was among the chorus of influential voices to criticise such a move, saying the behaviour amounted to “abusing the system at the expense of property owners”. The 61-year-old founder disagrees. “I feel as if the criticism is unjustified. This is a tough time for us as well,” Dixon says. “These [landlords] are sophisticated companies and everyone knew what they were signing up to,” he adds. “They knew what the guarantee was and they knew who the company was. It was not as if we sprung it on them afterwards.” Nor does the you-signed-up-for-this excuse make him “one of the bad guys”, he insists. “Everyone is entitled to their opinion, but what I can tell you is that 90% of our partners, although not happy, understood. We agreed to disagree and moved on. And we have since gone on to do more buildings with many of them… That is not the case for some in the retail sector, for example, where once things are closed, they are not going to reopen.” Landlords may live on, but some – including Legal & General’s property investment arm – have already resolved to stop letting to IWG. Moreover, this is not the first time Dixon has employed the tactic, having taken similar actions after the dotcom bubble burst and again during the global financial crisis. Market sources have expressed surprise that IWG, with its aura of resilience, has not come up with another plan to insulate itself in times of financial distress. Others have described the behaviour as “bullying”, “intimidation tactics”, and “strong-arming landlords” during the pandemic. I put this to Dixon, who grows exasperated at the suggestion. “How could we possibly strong-arm a landlord? That’s another word for negotiation, isn’t it? Sure, trying to reach a solution is sometimes not easy, but to strong-arm someone you have to be stronger than them. We are not,” he says. “We are just an occupier in the end, and we are not operating from a position of strength.” Two elephants Not yet, at least. But there are those who argue that the co-working sector looks set for a historic boom after the pandemic, as tenants increasingly look for flexibility in their office footprint while they figure out how their workplaces will operate in a post-lockdown era. Hybrid working, which most predict will prevail in the coming years, is already spurring listed landlords such as Great Portland Estates to increase the proportion of space devoted to flexible offices. “Many dyed-in-the-wool property guys think things are going to go back to normal. Well sorry guys, it’s not,” Dixon says, back on the front foot. “There are two elephants in the room. Number one is digital. It has already killed the high street, but for offices, it is Microsoft and other video call companies providing the real estate that is important for workers these days. That digital disruption which allows people to work from anywhere at any time is here to stay.” The second elephant, he says, is the environment. “Once Covid moves away stage-right, the conversation will be about sustainability. That means less commuting and more local working.” This supports another of IWG’s growth plans for the coming years: expanding its office network outside of capital cities. “Large companies are now saying: ‘We want to change the way we work. Why are we forcing people to commute long distances?’” Dixon is betting on his business being well-placed to capitalise on that trend. Earlier this year, it secured a deal with Japanese telecoms giant Nippon Telegraph and Telephone to provide access to its global network of offices for NTT’s 300,000 employees. It has done similar deals with tech giants Cisco and Salesforce, and another with the UK government. “We are the only ones with the network and coverage to accommodate hundreds of thousands of people, which is why they have come to us,” he says. “So from the worst of times, we move to the best of times.” Meanwhile, the company hopes to continue expanding its franchising operation, in which partners take on more financial reward – and more of the risk – of running their own IWG-branded office. It has even started converting disused retail space in regional towns into flexible offices, all as part of a plan to build on what Dixon has previously described as the group’s “greatest opportunity” in decades. It is no wonder that Dixon, who lives in Monaco and still holds nearly one-third of the company’s shares, has no plans on stepping back any time soon. What about his long-held wish of retiring to run a vineyard? “That is the eventual plan,” he says. “We are not through the crisis yet though. First, we have to expand and bring more talent in. Then maybe that could become an option one day. “Besides, we are a fast growing business in what I think will be a big part of the future of real estate. I would like to have the luxury of thinking about myself,” he says. “But for the moment it’s a busy time.” To send feedback, e-mail alex.daniel@eg.co.uk or tweet @alexmdaniel or @EGPropertyNews