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The DTZ report is without doubt a major contribution to the general knowledge and
understanding of the flexible managed office industry and the people who contributed
the time and effort to get it off the ground deserve thanks from everyone interested in
the industry. It also addressed one of the main issues affecting the industry, namely
the valuation of business centres. But it made no attempt to address the biggest
question of all: namely the future of flexible space in the context of the office market
as a whole.
Our view is quite clear. Business centres, serviced offices and managed offices are in
a long term structural growth trend. This growth is accelerating as more and more
individuals and businesses become aware of the advantages of flexible offices. As the
operating companies expand they are able to advertise more widely, stimulating
further demand so the demand side is self –reinforcing.
The same virtuous circle can be seen in the investment field as well. As more
institutional investments are made, more investors will become interested in the
sector, which will have the effect of increasing capital values and of bringing more
capital into the industry for further growth.
This process is bound to result in the sector becoming large enough to be considered
at the very least a recognised sub-sector of the office market. We see flexible offices
in their various forms becoming as much as 25% of total office space within the
decade, totally at the expense of leased offices.
For the sake of completeness, we should add that this growth trend can be seen in
every market in the world.Business centres are available to occupy or to invest in
anywhere in the world.
The most recent announced investment is by Kenmore Properties private equity fund
in Avanta Offices, run by one of the most well-known figures in the industry, David
Alberto formerly managing director of MWB Business Exchange. Unlike Regus and
MWBex which have generally operated out of leased space, Avanta is pursuing a
‘mixed’ model where some of its space is leased (the minority) some is managed
under contract and some is owned by the group. This diversification of business
model has the advantage of flexibility – if a good building comes along, Avanta can
secure it, whether it is for rent, for sale or available to be managed – and of avoiding
excessive operational gearing.
Kenmore has committed £30 million of equity to Avanta, which effectively gives it
approximately £100 million to spend.
In another surprising development, Larry Lipman, the former managing director of
BizSpace, having sold that company to Highcross, has reassembled his old team of
key staff and has acquired Watford Business Centre for a reported £15.75 million
through his Safeland property company. What is surprising is that he was allowed to
do this under the terms of the sell-out to Highcross, unless of course the idea is that he
will build up another similar operation to sell them as well.
Stock Market NewsThere are now six quoted companies that can be considered to
focus on flexible managed space. Two companies are main market listed
(Regus,Workspace) and the remainder are AIM listed (Stonemartin, Serviced Office
Group, MWBEX, Yourspace).
All six have outperformed the FTSE Support Services sector of the year. Indeed,
Regus announced its intention to pay its first dividend at the end of 2006. Yourspace
has shown considerable improvement in share price although a significant amount of
this has come from playing the property market which included a sale and leaseback
of a property in Manchester and successful planning applications for student
accommodation nearby.
MWBEX has continued to be active in acquiring leaseholds in London, creating hubs
of serviced space. Workspace is moving further into the more traditional serviced
office market with recent acquisitions including a property formerly managed by
Spacia in Southwark, London and properties in Clerkenwell and Haverlock Terrace.
Meanwhile, Serviced Office Group has acquired its 12th centre in Chiswick.
| Company |
Mkt Cap (mill) |
Price (p) |
YOY change |
Yield |
| Regus |
£1,280 |
130 |
+6p |
0 |
| Workspace |
£864 |
496 |
+186p |
0.79 |
| Serviced Office Grp |
£10 |
11.5 |
+3.1p |
0 |
| MWBEX |
£116 |
169 |
+71p |
0 |
| Yourspace |
£29 |
147 |
+99p |
6.7 |
| Stonemartin |
£9 |
7.5 |
+0.5p |
0 |
More... (open / download the report )
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