Foreword:

This report was originally conceived of as an attempt to understand how the business centre industry has performed over a complete business and real estate cycle and consequently covered a period of ten years. It was inevitably a historical survey and did not attempt to address the issue of what lay ahead, or how the industry would look in the 21st century.

A lot has happened since the report was written and since the last data was collected at the end of 2001. This foreword summarises those post balance sheet events, briefly reviews the situation of the industry in autumn 2002 and looks forward to 2003.

1999 and 2000 were years of plenty for the OBC industry. Boosted by the insatiable demand for space from dot.com companies, OBC operators were able to charge licensees up to five times the basic market price of the space with average multiples of three to three and a half times. By the end of 2000 the dot.com bubble was deflating rapidly and the telecoms companies were entering a period of decline. In the US, things started going flat about August 2000 and November marked the edge of the precipice for the downturn.

The effects of these changes were being felt by the end of the first quarter of 2001 in the UK and USA in those centres with a large percentage of TMT (technology, media and telecoms) clients. In continental Europe, Germany and France in particular did not feel the slide until much later in 2001 and were in a state of denial. Asia remained buoyed up by the continued growth in the Pacific region.

At approximately the same time, the US economy went into recession, and US multinational companies (MNCs) began implementing cost cutting measures including the closure of satellite offices overseas. The first of what proved to be several low points came in mid 2001 with the confluence of the three factors mentioned leading to a substantial drop in occupancy in those centres with the relevant clients types, principally the luxury operators. Those affected responded to the loss of business in the classic manner, by reducing their pricing. By the end of the third quarter complaints could be heard of a ‘price war’ being waged by the three big operators, Regus, HQ and MWB Business Exchange.

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