Private equity circles co-working sector

The rush by private equity to get a slice of the co-working/serviced office phenomenon shows no sign of letting up, despite one of the latest bids being rebuffed.

Brookfield Asset Management and private equity firm Onex withdrew their offer for IWG earlier this month after the board of the global flexible office group decided that it ‘continues to have an exciting future as an independent company’. The offer from Toronto-based Brookfield and Onex reportedly valued IWG at £2.5 bn (€3 bn).

Media reports suggest that IWG founder Mark Dixon was willing to accept the Canadian offer, but other board members felt it undervalued a business which has about 3,000 locations in 100 countries.

IWG’s network consists of various brands and levels of service. The largest brands are Regus (the original one), Spaces, Signature, Open Office and Mos. New regional brands are being added frequently.

Last year IWG expanded its UK coverage by 92,000 m2 by taking over Business Centres for £100 mln (€112 mln) and purchasing No.18, a more luxury boutique-type provider in Stockholm. And, this month IWG added BizDojo, New Zealand’s largest co-working brand.

The US Bureau of Labor Statistics has estimated that 40% of the country’s workforce will be freelancers, temps, independent contractors and entrepreneurs by 2020. And the 2020 Intuit Report says more than 80% of corporates are examining it. According to Colliers International, Fortune 100 companies are increasingly booking desks in temporary facilities to cut costs, attract the best talent and to stimulate creativity (see box).

Cue the interest from the private equity sector which likes nothing more than to get into emerging business sectors. Brookfield’s property arm, for instance, is particularly keen on niche and hybrid real estate concepts, alongside more mainstream ones.

The group this week exchanged contracts to acquire Oaktree Capital Management’s serviced apartment business Saco for £430 mln (€485 mln). The group is already a backer of US flexible workspace provider Convene, which has just appointed CBRE to initiate its UK expansion.

A week earlier, Student Roost, Brookfield’s student housing platform, acquired the Enigma portfolio, comprising 5,400 beds across 15 properties in 12 UK university towns and cities, from CBRE Global Investors and Curlew Student Trust for €586 mln.

London purchase
Other private equity firms that have made investments in the co-working sector include The Carlyle Group which, in a joint venture with the Adir Group in June 2017, acquired three London assets, which became part of the Uncommon brand.

Peter Stoll, managing director at The Carlyle Group, says: ‘As an emerging sector, we see the market for new concept working environments continuing to strengthen. An increasing number of businesses favour the flexibility and collaborative nature that this type of space offers.’

Around the same time Blackstone took a majority stake in The Office Group, a co-working specialist with 15,000 clients serviced at 36 buildings, mainly across central London.

The UK capital is the epicentre of the professionalised co-working sector. Cushman & Wakefield has reported that central London is one of the largest and most mature flexible office space locations in the world. Indeed, co-working operators took more than 21% of the central London office space in 2017. Not surprisingly, therefore, London is a key battle ground between IWG, various other platforms and US group WeWork. The latter, founded in 2010, is smaller than IWG, with 207 locations in 20 countries compared with IWG’s network of 3,000 locations in 100 countries.

Yet WeWork seems to be the one to beat. Last year, Japan’s Softbank and a Saudi-backed fund it manages took a combined $4.4 bn (€3.6 bn) stake, which is believed to have valued WeWork at $20 bn. According to C&W, WeWork has been the most prolific leaser of space in central London, taking 238,000 m2 since 2012. And in its hometown of New York, it has leased 279,000 m2. With figures like this, big capital will continue to fight for a share of the co-working space.

What is co-working?
Co-working is a serviced environment for work beyond the traditional office, home or café/hotel. Users include freelancers/sole traders, start-ups and corporates.

There are now many initiatives, including ones operated by traditional office landlords, offering flexible office solutions. In Europe, listed players such as NSI in the Netherlands, Gecina in France and Workspace in the UK all provide such space. But there are currently five major global networks: WeWork, IWG, Impact Hubs, Urban Station and Spark Lab.

Many of the new concepts hinge on building a community of co-workers and some, such as Impact Hub and Spark Lab, act as incubators to nurture specialist or start-up companies.

_______________________________________________________________

This article first appeared in EuroProperty, a PropertyEU weekly publication
on 15 February 2018.