Industrious takes flex against the grain

The future of workspace isn’t about flex. It’s not about space as a service, or even creating solutions. It’s about experience. It’s about, as Industrious founder Jamie Hodari keeps emphasising, creating “a great day at work”. If that sounds a bit mushy, Hodari already knows it. Nonetheless, the concept is the backbone of what he is growing at the co-working company. EG sits down with Hodari and recently hired managing director and head of Europe Tom Redmayne days after the business has secured its largest site in London, filling space departed by its struggling rival WeWork at Royal London’s 131 Finsbury Pavement, EC2. The contrast between the companies couldn’t be starker. Finsbury Pavement’s exiting tenant became the poster child for breakneck-paced expansion and then, as it works through Chapter 11 bankruptcy, a lesson in the risks of it all falling apart. The building’s new occupier is an altogether more restrained operation. Hodari and Redmayne don’t talk about grand plans for expansion and the need to grow exponentially. Instead, they talk about measured growth, risk aversion and resisting the draw of big shiny buildings simply for their own sake. That understated, against-the-grain approach is what made Redmayne want to move to Industrious from WiredScore late last year. He met Hodari some years before at an Oxford Properties/OMERS leadership convention where, in the short walk to a dinner, Hodari laid out his approach to building a flex business. “July 2019 was a pretty important time in the flex world,” says Redmayne. “It was just before the assumption of the WeWork IPO and there were a lot of ideas about what a great flex business looked like and what the nature of flex looked like. Jamie’s vision was a very different approach. He was taking Industrious in a different direction to the other players.”   A better mousetrap That different vision was one of slow growth, partnership agreements rather than leases, and being prepared for the inevitable downturns that come with every cycle. Simple to say, but getting stakeholders on board is a challenge. “This is the thing that is probably the most against the grain when you are a growing a business,” says Hodari. “You have to make your investors a nice return, you have to keep people excited about it year after year, so saying at the outset that this is going to be a 20-year journey is complicated. “But it just felt clear very early on that it was going to take about 20 years to get to an actual platform that could deliver on this concept of a productised, highly expert workplace experience. Because of that we tried to build a business model that we knew would survive the ups and downs of the market.” The focus on management agreements over leases was an obvious move, Hodari says, but one Industrious made “much earlier than anyone else globally”. “We gave up a lot of upside as a result,” he adds. “And giving up upside seemed crazy at that point. We were going to make one-third as much revenue, which means our company was going to be worth one-third as much. Why in God’s name would you do that just to survive some future hypothetical recession when you could just cross that bridge when you get to it?” Hodari says it felt very much like the business was “swimming upstream” in 2016-17, when the world was going crazy for flex. But Industrious’ momentum kept building. Its revenues have tripled since Covid, Hodari says, while WeWork’s are up by 5% and IWG’s by 20%. “I believe very strongly that the whole industry is going to move eventually to partnership agreements,” Hodari says. “That doesn’t mean they have to be hotel-style management contracts – there’s lots of flavours of partnership agreements. But I think the level of quality that customers expect is not going to be able to be delivered on an arm’s-length lease with a landlord who doesn’t know you from anyone. You have to be on the same side of the table to the landlord.” Hodari expects – no, wants – his competitors to move towards that model too. “Everyone is tired of the boom-and-bust cycle that the lease-based model has created, which has benefited no one. I would be shocked if in seven or eight years from now, 100% of new deals and two-thirds of standing flex spaces are not off the back of some sort of partnership agreement,” he says, adding: “I want our industry to become 30% of commercial real estate, not 7%, and the only way we are going to get there is with a sustainable business model that works well for everyone. “Industrious isn’t trying to keep or jealously guard this better mousetrap. I believe it is a better mousetrap and I want everyone to be using it.” Under the skin The “mousetrap” of which Hodari talks is akin to the turnover rent deals seen in the retail sector. Redmayne explains that the firm’s growth in London and beyond will be based on securing deals with landlords in which it takes a lease with a base layer of rent and then a revenue share with the landlord. A partnership, where both parties have skin in the game and where that customer experience that Hodari and Redmayne believe will be key to success is equally important to all parties. For Redmayne, this is why he joined the business. “What I have observed in London is that there has been such a polarisation of buildings in the market,” he says. “Primary buildings are achieving record rents and really flying while secondary buildings are really struggling. “But I think the difference between a good building and a secondary is increasingly less about location and how it looks and more about the all-encompassing experience you provide. And experience starts the second you walk into a building.” Redmayne and team want customers to feel “delighted” throughout their day in an Industrious office. That is “pushing against an open door in the UK”, he says. “There was a question five years ago about whether that was really needed. But now you have to deliver that all-encompassing experience. And even if you can’t put a yield shift on that, there’s enough evidence in the market, qualitatively, that it’s a no-brainer. And in the UK there is a growing understanding that to deliver that kind of experience you need a partnership of some sort,” he adds. “We don’t just believe in partnership agreements because it derisks it, we genuinely believe it enables us and the landlord to provide a better experience to customers, which in turn will provide a better return to their investors and will keep our customers happy so they stay in our space for a long time.” In the US, where Industrious has been operating since 2013, the business has so much data that it is now able to confidently predict what will make people happy and where. The data it has collected on utilisation of space, subjective metrics about satisfaction and engagement has enabled it to understand profitability better, making it feel more secure and confident in its decisions. That is working well in the US and has led the business to launch a neighbourhood plan, opening spaces for people to work near home, because, says Hodari, most people hate commuting. In the UK and Europe the data isn’t quite strong enough yet so expansion will be “more art than science” for now. London will continue to be a focus for the firm in the UK, with Germany, the Netherlands and France key locations across Europe. But expansion will be measured and considered. “Real estate is local and you have to get under the skin of these markets,” says Redmayne. “So we want to be quite deliberate in choosing markets that we can really get an understanding of before we then look to grow further. “Europe is littered with businesses that have compromised and ended up signing a fixed lease and then failed, so you have to be very stringent on knowing what works for you. Even if it is that lovely shiny building with the great landlord.” He adds: “A successful flex space or business is not one that looks beautiful and full of people if they’ve got the underlying deal where you need 120% occupancy to break even – which quite a lot of them do. It might look good on the outside but fundamentally you can’t run a sustainable business like that.” Disney dreams And sustainability counts. Few brands in real estate need to serve the same set of people repeatedly, Hodari notes. “A lot of the ecosystem is made up of people like architects, who can be incredibly thoughtful, but they deliver a set of advice and then move on to the next client. And that might be true in construction, or it might be true when you hire a consultant. “But for better or worse, our business lives or dies day after day on whether people actually want what we’re offering and continue to want what we’re offering. People can vote with their feet and if we’re doing a crappy job of it, they’re going to move to a competitor space. “I do believe the people who are going to crack the code of what are the factors that make for a really exceptional work environment and how you deliver that on a consistent basis are going to be the most thoughtful and most ambitious flex workplace providers.” And that, of course, for him will be Industrious. Hodari is confident that Industrious will be one of the three main players in the flex world – perhaps one of two, alongside IWG, depending on what ultimately happens with WeWork. But his dream for the company takes us to a different kind of business behemoth: Disneyland. He ultimately wants Industrious to do for workspace what Disney has done for theme parks. “You go to Disney and in certain ways it is a giant global mega-corporation for whom any individual visitor is a blip compared with a local amusement park and yet it has cracked the code to make every family feel a part of it,” he says. “The ambition is to get to a place where we can say we’ve done this enough and we’ve done it with enough heart and intent and conviction about trying to be the expert in how to deliver a great day at work that we are able to do it for any customer in any location and they get the best of both worlds. “They get a highly individualised experience that feels personal to them that is in part powered by many years of trying to refine that exact experience.” Portrait photos © Louise Haywood-Schiefer