The serviced office sector is the current expression of office flexibility. At the height of the last boom, Regus and the rest blazed a trail for those looking for flexible, easy-in, easy-out space that responded to business conditions, rather than dictated them. Then the market fell away and the serviced office operators found themselves in trouble as occupancy rates plummeted with Regus’s share price.
As the first signs of recovery start to glimmer in agents’ eyes, how has the serviced office market weathered the storm? Research from the Business Centre Association reveals that occupancy is slowly rising again. Average occupancy levels across the country increased from 76% to 78.25% during 2003, with a mid-season peak occupancy average of 88%.
Some of this upward trend can be attributed to the diversification of the market, as the operators strive to find their own niche and differentiate themselves in a rapidly maturing market. Each targets a different sort of worker, all within this rapidly expanding category of “flexible”.
Richard Balfour-Lynn, chief executive of Marylebone Warwick Balfour, sees the firm’s serviced office operation, MWB Business Exchange, as a top-end offer. “We made a mistake chasing Regus’s rates downwards,” he admits with surprising candour.
Lower rates mean fewer services
“When you’re running a top hotel, you don’t slash room rates just to get occupancy when the market’s bad, because you end up having to cut back on services. People come to us for top-class service,” he adds.
Balfour-Lynn knows what he’s talking about when it comes to hotels — the firm owns a number of upmarket hotels, including the Malmaison chain. Thus, he’s in the process of driving the rents back up in the centres, even if that means a temporary drop in occupation. “We’ll be well placed to make money again when the market comes back, if we can keep our rents up,” he explains.
He also makes a comparison to Liberty, the department store also owned by MWB, and sales technique. “When was the last time you went into a shop and somebody actually sold to you?” he asks, intently. “I mean actively sold to you, helping you buy what you wanted, rather than just serving you at the till? Go into Liberty, and that’ll happen.”
His philosophy is the same for the serviced office market, too. The staff should be sales people, identifying what the customers need in a workspace and offering it to them — at a price, of course. He explains that he has recently completed a house-clearing exercise, stripping out management who didn’t understand the concept of service and replacing them with more proactive people. His vision of staff who interact and partner with clients to boost business for both sounds much like the sort of model of the future office that the BCO predicts (see p156). Are other players in the market living up to this vision?
New spaces on the block
Even in this difficult market, some operators are opening offices. The Business Environment Group launched a new centre in the City of London at the beginning of the month. Number 45 Beech Street is a slightly unusual location for an office. Its entrance is tucked away in the underpass on the edge of the Barbican. The firm is confident enough in the demand for serviced space that it has committed £10m into acquiring and refurbishing the property.
The serviced office element of the building is offered on all-inclusive terms — the internet connection, telephone calls and even coffee and tea are included in the price. A few services remain outside the price — secretarial support, couriers and catering, for example — but this is very much an example of office space as a commodity.
However, the firm hedges its bets by mixing traditionally leased floors with serviced offices through the building, giving it a guaranteed revenue stream and reducing its exposure to the inherent instability of serviced operators. Some operations choose to go to the other extreme, basing their business on the riskiest and least committed tenants in the marker.
One such example, eOffice, makes its philosophy plain from the moment you walk through the door.
The reception, just around the corner from Estates Gazette’s Wardour Street offices in London’s Soho, is stylishly fitted out. A cupboard offers the sort of carefully designed office equipment that costs five times what you’d normally pay for a stapler or other desk accessory.
MD Pier Paolo Mucelli makes it plain that the stylish design is part of the appeal. He’s targeting individual consultants and small teams that need the space only for small periods of time. In fact, he sees the coffee shops that offer WiFi access as just as much his competitors as the larger serviced office operators. You become a member of eOffice, rather than a tenant, and use the office’s website portal to book time in the office, meeting space or the other facilities. Membership starts at £99 per month.
Mucelli aims to push things further than just providing a service. The website is also a means of building a feel of community among the members, giving them a little of the social interaction that conventional office life brings. It’s just further evidence that, for workers seeking the flexibility of the future, that future is already taking form.
