Taking an office has always had a rather bespoke, Savile Row feel about it. The occupier is measured – sir is offered various choices, some harder wearing than others, some quite shiny – and then sir is invited to sign the paperwork. It’s all very tailored, very individual.
But not for much longer. Steve Jude is going to change all that, and you can forget Savile Row. Think Gap instead.
Jude, whose background is in travel and airlines, joined Citibase as managing director in 2007 via senior roles at Regus and MWB. Now chief executive of the fast-growing serviced office brand, he’s bringing retail know-how to the business of office property.
Jude says the key word is “sticky” – meaning customers who will stick with the brand, come what may.
And they better had because Citibase isn’t necessarily offering them the chance to stick with the building, which might change underneath them.
That’s because Citibase usually doesn’t take leases itself. It prefers five-year management contracts with the landlord so there is always a quinquennial risk it will have to move to new premises. If the landlord tires of this or finds a long-term tenant Citibase will be out the door.
Fortunately for the Citibase business model, this doesn’t matter a bean. The Citibase office in Victoria has moved three times, its outpost in Leeds has moved once, and the customers don‘t seem bothered.
Jude’s theory is this: like your local branch of Gap the property fact that matters to customers is that the building is in a good location. Exactly which one is unimportant; so long as there are lots of Gap clothes inside, you’ll be happy.
This brings modern retail strategy right into the heart of office property: forget the building, think brand instead.
Jude says: “My background is in airlines, car rental, travel, and I think about customers all the time. But the property market thinks about tenants.
“Clearly the market for leasing buildings directly from landlords will remain huge. And Regus and its like are superb at providing accommodation at the top end of the market. But what about cost-conscious small and medium-sized businesses?
“The answer is to take some of that vast stockpile of surplus office property and sell it to retail. What we say to landlords is: we can make your building work for you. We don’t take on a lease, we take on a management contract for five years.
“We’re working with landlords that have excess floorspace and don’t know what to do with it. We manage the property as a Citibase centre. We take a management fee, the landlord takes the rest. The risk stays with them but we sell it like mad and they get an income they wouldn’t otherwise have.
“If the landlord thinks they can let the building on a standard lease and make more money than they can from us, best of luck to them, but many of the buildings we’ve been dealing with have been empty for years – in one case for four years.”
Today Jude has management contracts in negotiation or pending that could add a further 750,000 sq ft to his network, taking the Citibase portfolio from 51 centres to his medium-term objective of 100.
Jude is convinced there is a market from small and medium-sized occupiers. “The new businesses of today – the Facebook generation – want something that allows them to be more agile. They are risk-averse, cost-conscious and want to keep good staff,” he says. “They are also worried about leases going on their balance sheet as liabilities. In those circumstances, they want something a traditional lease can’t provide.”
These are the kind of occupiers who know what they want: good facilities and reliable high-speed broadband connections top the list. What they don’t much care about is details such as the precise address as long as it’s a nice building in a good spot.
Jude adds: “When the management contract with a landlord comes to an end they might want to renew it or we might want to renew it or there is a chance we might take a lease, but for now the likelihood is we would move down the road. We moved our Victoria office from Warwick Row to Victoria Street and only two tenants chose not to come with us.”
The move, in October last year, saw Citibase sign up for 20,000 sq ft at 64 Victoria Street, SW1, advised by Tuckerman.
The success of the move seems to prove Jude is right – the “sticky” customer’s loyalty is to the brand, not the building.
Taking leases, or acquiring existing independent serviced office businesses, is not the Citibase way. “I have seen at least 100 opportunities to acquire existing business, and we have taken only three,” says Jude.
Growth will result in changes in ?the service office market. “Eventually we are going to see market consolidation and duopoly in the serviced office sector because that is how every market goes ?in the end. What I’m imagining is that there will be a Regus-type operator providing something four-star and a Citibase-type operator providing something three-star – and I’m hoping the Citibase-type operator will be Citibase,” he says, laughing.
Jude claims that the UK serviced office sector totals 30m sq ft, roughly the size of the Manchester office market, and is growing at 7% a year. That means it could double to 60m sq ft by 2023.
That’s going to mean a lot of potentially sticky clients for someone. And Jude’s hope is that they stick with him.
Citibase expands into Croydon
Croydon is the latest addition to the Citibase network. The deal with John Laing sees it take over management of an established business centre in Davis House.
Citibase, which was formed in 1993 by former London and Edinburgh Trust executives David Joseph and Ian Read, has more than 1m sq ft under management.
The business claims to handle annual demand for up to 5m sq ft of office floor space annually.
Typical Citibase offices are between 9,000 and 30,000 sq ft.
How a bit of ‘fluffing’ can ?put occupiers in a good place
If you have got to grips with “sticky” try the next big serviced office buzzword: fluffing.
George Hudson, 27, is a member of the so-called Facebook generation and, as the creator of a young busy media company, you might have thought he would be an obvious Citibase tenant.
But he isn’t. Hudson returned from college in the United States and set up GH Media from another brand of serviced offices in London but was frustrated by slow internet connection speed, lack of meeting room space and characterless buildings.
His response was to open his own serviced office brand. The first outlet of GH Space opened in Angel, Islington, followed by a second in Soho. Ten more are planned.
Hudson is attempting to outflank the traditional serviced office providers by providing something the Facebook generation can’t resist.
“Occupiers just want to set up and start working, and what they also want is a bit of fluffing,” he says.
“By that I mean they want to seem bigger than they are, so we avoid our own branding which means clients can look like they own and run the whole building, or parts of it.
“We’ll even customise the space with their branding on electronic boards and so on.
“The offer has to be different. Not tea trolleys and fax machines, but 100mbps broadband and, in our Soho office, a fully licensed bar.”
Today GH Space has about 8,000 sq ft in central London and 30 clients.
