Last week, Industrious Co-Founder and CEO Jamie Hodari appeared on Bloomberg Markets to discuss the recent WeWork bankruptcy announcement.

In the conversation with Bloomberg anchors Alix Steel and Guy Johnson, and Bloomberg reporter Sonali Basak, Hodari covers what’s next for WeWork, how the Industrious business model is different from competitors, and where the flexible workspace industry will go from here.

To watch the full interview, click the image below or follow this link. We’ve also reproduced a full transcript of the interview if you prefer to read.

Watch Bloomberg’s full interview with Industrious CEO Jamie Hodari.

Bloomberg Markets Interview with Industrious Co-founder and CEO Jamie Hodari

This interview transcript has been lightly edited and condensed for clarity.

Alix Steel, Bloomberg Markets Anchor: So WeWork finally went bankrupt this week. What does this mean for you? 

Jamie Hodari: For us? Many of their spaces are going to end up closing as a result, and us and other competitors will probably take over some of them. There’s going to be customers that move to other providers. But in general, I think that this is potentially going to present this sort of dividing line between V1 of our industry — this is maybe the death knell of that — and the next generation of where the flex office is going, which I think is actually very exciting. And one of the real bright spots within an otherwise troubled commercial real estate market. 

Sonali Basak, Bloomberg Reporter: There’s a lot of people that are kind of calling doomsday on the commercial real estate market with the scale of which WeWork is exiting locations. Forty in New York. They have almost 800 leases in many locations in big cities. Do you think that this signals disaster or are there ways for the commercial real estate industry to maneuver this?

Hodari: I think a lot of the stuff around, “This is going to be apocalyptic for the real estate industry” is overblown. The reason is our industry is a lot like the hotel industry. 

When a Marriott decides to close, it usually becomes a Hyatt or it becomes a Westin. You don’t have a building that then sits empty for years. Most of these workspaces are simply going to become an Industrious or an IWG or will be run directly by the landlord. They’re not going to actually sit empty the way a lot of the press has described it, other than the ultra large ones where they took down a whole building. Those will probably shrink by about half.

Guy Johnson, Bloomberg Markets Anchor: I would have thought that this would be the perfect time for your industry. Everybody’s talking about hot desking. Everybody’s talking about working from home, coming in a few days, the flexible approach. How do we find ourselves in a situation where the kind of the stock that’s emblematic of this industry fails, yet the wind is blowing in the right direction?

That is the great irony of this moment. I think it is the big question because this is the moment of greatest demand for flex. To your point, the way people work now, a lot of the workplace strategies that companies are deploying require them to work with the flex provider, and most flex providers are in their period of peak demand. Our revenue was up 40% this year. It’s up 300% since 2019. That might be extreme within our industry, but most providers have seen some kind of increase in demand within that range. 

What happened with WeWork is two things. One, to go back to the hotel industry. The hotel industry used to be run on leases. This was many years ago and it was carnage. When someone would go lease a building and create a hotel, they would do well in good times and they’d all go bankrupt in bad times. 

About 30 years ago, hotels moved to management agreements where it’s run in a management agreement with the building. And the hotel industry has become much more stable, much more valuable. Our industry has undergone that same shift. 

Industrious, for example, only does management agreements. WeWork is one of the legacy providers that was entirely based on leases and that structure, that boom-and-bust business model, put them in a very precarious position. 

I would finish by saying an easy way to think about it is WeWork’s liabilities, just their fixed liabilities, their rent plus interest, was 85% of their revenue last quarter. There’s no business on Earth, there’s no viewer that could imagine a company where 85% of the revenue goes to fixed expenses, before you even need to run your company, that would be able to survive. So that’s what took them down. 

Basak: What does this mean for the lessons learned? Industrious was actually formed around the same time as we work and you only have less than 200 office spaces while they had almost 800. Was this the rate of growth? Was it the long term leases? What are some of the big things that you’ve taken from this experience, or that you would do differently now? 

There were moments growing at a more moderate pace where I felt anxious about it. I felt like, Are we making the wrong decision? I do think it’s helped validate that a nice compounded 30-40% per year growth is a more sustainable way to run a business than trying to triple in size every year. 

Part of the lesson is about that lease space model. Basically, they signed a lot of leases at the top of the market, and that’s very unforgiving.

This is a sector with a lot of demand, but you’ve got to be thoughtful about your pathway for growth and you have to have business models that are meant to profit and be sustainable, not to jack up revenue in the short run and sort of put down, “We’ll figure out how to be profitable tomorrow.”

Johnson: A lot of people are still trying to figure out their work life, trying to understand what their jobs are going to look like going forward. What do you see happening? We’re seeing a lot of hot desking now. We’re seeing a lot of flexibility. We’re seeing a lot of working from home. How do you see this process shaking out and settling down?

What I see, I think in Asia, employers will mostly ask employees to come back to work five days a week. In Europe, it’ll be a mix. In the US, most employers will allow employees to choose what to do. That’s going to lead to or continue to accelerate this trend towards more distributed ways of working.

Instead of saying, “We have 5000 employees and they all have to live in Chicago or you better work somewhere else,” they’re going to have 200 employees in Denver, 80 employees in Miami, maybe a little cluster of six employees in Boise, Idaho.

You’ll see these networks of workplaces that companies use, and they’re going to let employees come in a couple of days a week. They can come in five days a week if they want. But I think employees have loved that kind of freedom, and there’s no evidence that it’s been counter to productivity. I expect that trend to keep going. 

Basak: Do you think that leases are going to still come down meaningfully? I know you didn’t see catastrophic CRE impact, but what is the impact?

I think that long term leasing is in trouble. Demand, depending how you define it, is down about 50%. I think flex office is one of the sort of bright spots within that. But we’re not big enough — we’re 2-3% of commercial real estate. We’re not big enough with or without WeWork to materially change that trajectory. Overall, it’s a challenging period for office, but perhaps a bright one for flex office. You’ll see it grow 2-3% of overall office share to something like 10%.