4.0 Executive Summary

The last three years have seen rapid expansion and greater awareness of serviced offices in the business world. The industry has changed as a whole over this period with a number of specialist office agencies springing up such as Serviced Office Search (www.eservicedofficesearch.com) and Instant Offices (www.instantoffices.co.uk) which are solely dedicated to finding serviced office space for occupiers. These agents were responsible for 40% of all enquires for the centres responding to this research.

The industry has also become more marketable over the last three years mainly because of the high profile marketing of Regus and MWB Business Exchange. Serviced offices are now seen as a viable property product for all types of businesses trying to meet the ultimate goal of flexibility for their property needs.

This research intends to illustrate how serviced offices have performed over the last business cycle, which to the best of our belief, has not been done before.

The results show that the average length of stay in Central London by occupiers has not changed over the last 10 years and is, on average, 1 year and three months. In suburban and provincial areas, the average length of stay has decreased from 2.1 years to 1.4 years.

Occupancy levels over the period show that Central London has performed consistently well, even sustaining high levels of occupancy throughout the recession of 1989 to 1993; although occupancy levels did fall slightly, profitable levels of occupancy were sustained.

Suburban and provincial centres also experienced falls in occupancy during the recession but, again, with a few exceptions, profitability was sustained. The average occupancy levels over the period 1990 to 1994 was 72% in Central London and 83% in suburban and provincial areas.

Since the recovery of the economy in 1994, there has been a steady increase in occupancy with healthy averages in both Central London and suburban and provincial areas. The average occupancy levels over this period have been 92% and 88% respectively.

Between 1990 and 1993 the only real market change in licensee mix was the introduction of Telecom, Media and Technology (TMT) firms. The perception of operators is that the firms that left the centres over this period were small firms whose owners reverted to working from home.

Since 1994, the mix has remained relatively stable, albeit with a marked increase in technological firms such as computer programmers. Centres experiencing this increase were ones equipped with adequate technology infrastructures, such as those with Category 5 cabling and ISDN lines, enabling them to support these types of business. In fact, many of the centres involved in the study were in the process of installing better technology provision in order to meet growing demand for broadband internet access.

Since 1998, the majority of centres experienced an influx of “dot coms” seeking low risk office space requirements for their rapidly expanding businesses. However, in late 2000, a large number of them left following the failure of capital raising exercises. The dot coms have been replaced by more traditional businesses seeking the benefit of flexibility in their space planning requirements. Serviced offices are now seen as a viable property product for all types of businesses Average occupancy levels over this time have been 92% in London.

Expansion is a consistent theme throughout the serviced office market for the next decade. It is expected to be without doubt that the profile of the industry will increase and the cost effective ‘easy in, easy out’ idea will lead to a greater demand for serviced offices. The majority of the service operators are thus intending to expand their companies.

This expansion is expected to lead to consolidation in the sector with middle-sized operators acquiring small operators and new market entrants appearing from the ranks of the larger property companies. Several property companies have already started to test the water by entering into joint ventures with serviced office operators.

Support for the growth of serviced offices as a flexible alternative to traditional property solutions comes from recent research by The University of Reading (Gibson, 1999). It found that current portfolios among occupiers of office space were misaligned with their desired portfolios. The greatest mismatch highlighted was that while 17% of portfolios represented leaseholds of between 1 and 5 years the desired proportion was significantly greater at 39%.

The research also highlighted that occupiers still have inadequate property data in order to make informed decisions about their property commitments. Firms are generally unaware of the exit liabilities of property, which may have massive financial implications on their businesses. Greater awareness of occupancy costs and exit values by firms will lead to greater use of serviced offices in the future (the easy in, easy out philosophy). From the research, it is also evident that the success of centres is still heavily reliant on location because of its importance for both occupiers and their customers.

Our view is that corporate occupiers on average, still have a poor grasp of the total occupancy costs of the space they occupy. The data required to analyse occupancy costs is usually dispersed among different parts of the organisation and is difficult to obtain and analyse.

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