Copyright: David Lawson – appeared Property Week September 1998Home page
There are no brass plates outside the elegant Edwardian building, no names on the bell push, nor behind the stunning - and briskly efficient - receptionist inside. She has a slight accent, raising further hints of international money moving in mysterious ways.
The image fits London's Mayfair like a glove. But a crisp, new block in Windsor shares similar anonymity. So does a stuccoed mansion outside Reading, a section of London's Broadgate complex and a slick financial factory on the super-modern Stockley Business Park, near Heathrow.
Further investigation reveals a network of almost two dozen clones across the UK linked to an international network stretching into the hundreds.
'We don't like to make a fuss,' is the modest explanation by HQ Business Centres joint-MD Peter Kershaw. A surprising admission, as he made his name with such headline-grabbing giants as Broadgate, London Bridge City, Spitalfields and the mammoth reconstruction of the world's tallest buildings in Kuala Lumpur.
HQ also made its own headlines earlier this year by linking with US giant CarrAmerica and setting up a groundbreaking property fund with Mercury Asset management. But the group still eschews the razzmatazz of headed notepaper, branded ashtrays and corporate flags.
'Our tenants don't want to be constantly reminded about us and use our name on their letters,' he explains. They don't need to. Most are blue-chip operations with their own high profile. And cutting brass plates would be a full-time operation, as they come and go with metronomic regularity.
One leading office agent who has watched commissions disappear into an HQ centre likens the operation to a high-class hotel. 'If Regus is the Hilton or Marriott of serviced offices, all fanfare and advertising, HQ is the equivalent of Claridges. And you won't see Claridges putting up lists of occupiers.'
The other joint-MD, Peter Allport, who practically invented the idea of business centres in the UK while at Lambert Smith Hampton, does not object to the analogy. 'Clients tend to hear about us by word-of-mouth,' he says.
What they hear is that you don't have to take a big chunk of offices at prime rates when starting up an operation with a handful of staff. Nor do you need to sign a 15-year lease when planning a project which may require space for only a few years.
Like so many ideas insinuating into the UK property market, it originated in the US. And that is where Kershaw and Allsop turned earlier this year to find support for ambitious plans to build their network. CarrAmerica Realty Corporation is not among the names commonly touted as an invader but it has the financial clout of any REIT, with more than a billion dollars invested in property last year alone.
Hoovering up HQ franchises across the US cost a quarter of that. By bringing these together with Omni, another business centre specialist bought for 50m dollars, the group became the largest operator in the world, with 3m sq ft of space in 20 countries.
The UK operation, acquired by Kershaw and Allport two years ago with a 1.8m pound equity stake by NatWest Ventures, went willingly into the fold. The 33m pounds purchase price was one powerful incentive. Finding a major partner was just as important, however.
'We had a lot of people knocking on our door, including several UK bidders,' says Kershaw. But the partners wanted to find an international player.
The UK operation has gone from two centres to 21 in two short years as it expands across the country. The aim is to double that amount again by the year 2000. Breaking out of narrow national boundaries needed deeper pockets.
'We were planning on six new centres a year. The agreement gives us the strength to move to 10 or 12,' says Kershaw.
CarrAmerica is keen to provide a European service for its blue-chip US clients; Kershaw and Allsop want to invade what they call the 'shopping bag' capitals - cities like Paris, Madrid, Milan and Berlin which are listed on every top department store's wrapping. The target now is 48 centres in five years.
Is there a race with rivals like Regus, also opening new centres by the day? Kershaw is drawn back to the hotel analogy, pointing out that HQ is aiming only at five-star locations for top-slice customers. He is not going to be challenging Regus - or new entrants like Marylebone Warwick Balfour - on every front.
Nor does it have plans for moving into the ultra-short-term market, where offices are rented out by the day. The norm is a three-month agreement, although occupiers tend to stay a lot longer.
'There is plenty of room in this market,' he adds. Business centres (he hates to use the tarnished term serviced offices) currently make up about 3-5% of the office market. HQ expects this to eventually reach 20%.
The key to growth lies in demand for new kinds of tenure. This goes beyond short leases to provision of hotel-like services in prime locations for blue-chip names. CarrAmerica chairman Thomas Carr pointed out after the takeover that business centres were a response to customers demanding flexible and efficient accommodation around the world.
'Demand for flexibility is even more dramatic in the UK, where institutional real estate landlords that dominate the market typically demand long leases,' he said.
But UK investors are now taking an interest. MAM has broken from the herd by investing 80m pounds in a joint fund which HQ is using to expand its UK network. Recent acquisitions in Stockley Park, Bristol and Edinburgh have been funded by the partnership, which runs in parallel with Carr's input to European expansion.
This kind of relationship could open new doors for HQ, which is investing 20m in the fund but receiving 50% of the profits. It can take freeholds rather than succumb to traditional leases and sell expertise to institutions wary of taking on this newfangled property. If plans for further links with funds come off, this could prove the real breakthrough for the sector.