When is a property sector not a property sector? Well, the answer could be when it is a service-led segment of the real estate industry, such as the brave new world of carrier hotels or, perhaps, the more familiar one of serviced offices.
Industry definitions tend to become blurred when those wanting to get involved on the real estate side realise that they would have to immerse themselves in far more than just the property fundamentals and also have to control what might essentially be a service company backed by real estate.
It works the other way, too, since these companies also don’t want to be classed as property companies. With large discounts to net asset values proliferating, real estate is not exactly a fun sector to be in, especially if you plan to float in time.
But does this mean that the property industry should turn its back totally on carrier hotels with its high services bias? Carrier hotels, or the co-location industry as it is also known, is a fresh, stimulating sector industry: the market size is set to explode and the optimism in the industry for its future prospects is unending.
Obviously, operator optimism is a less than meaningful rating to give an industry, but compare this to the serviced offices industry which appears to have several similarities to that of carrier hotels. The one difference, however, is that in the beginning of the serviced offices industry, you could count the number of optimistic voices on one hand. Regus founder Mark Dixon was probably one of the loudest and he could enjoy a £700m plus personal fortune after flotation. The property industry also now embraces him and his company, and the likes of UK property companies MEPC, Arlington and US company Equity Office Properties form a few of the company’s joint-venture alliances. Others in the property industry such as UK company Marylebone Warwick Balfour have set up their own serviced offices arm, in this case MWB Business Exchange.
The Regus concept came from a theory – and it turned out to be a sound one – that corporates wanted and would pay for short-term and flexible space. It wasn’t even a proven theory and seems no more than a hunch when you compare it to the solid growth prospects offered by the telecoms side to support the carrier hotel industry.
If the property sector now wants to get involved with the carrier hotels business, it has to learn from serviced offices and lose its hang ups about having a role in the services industry.
Andrea Carpenter
