Copyright: David Lawson
Published: Property Week Oct 2007
As uncertainty percolates through the economy, many are salivating at the prospect of demand from businesses unwilling to take on heavy property commitments. But long-term success will involve more than being in the right place at the right time. Tenants are becoming more choosy. The era of back-street warrens and converted sheds on godforsaken industrial parks won’t be revived by the latest economic wobble.
There is still a place for the cheap and cheerful. Evans Easyspace is proud to serve the ‘dirtier’ end of the market, where workshops are as common as glossy offices. But that does not mean tarting up any old rubbish. It provides new buildings designed for smaller tenants.These firms need to expand or contract at will, so they need flexible space, says managing director Tom Stokes. But he dismisses the ploy of chopping up space with partitions. They get damaged, leaving a scruffy appearance, and there are problems with ventilation, privacy and sound attenuation. Instead, Evans creates buildings in a range of different shapes and sizes.
A similar thoughtful approach is being developed for services. Many tenants no longer want packages including everything from fax services to hot and cold running secretaries. Who needs them when you can do it all from a PC? But gaps are still being exploited. Several landlords are dabbling with storage, as this can be critical for tenants already pressed for space. Forsyth has launched a service called Storezone as part of its £200m expansion. Bizspace is trying out Microstore, an automated facility, on a couple of sites. Evans has created storage in four centres and could include it in around half the planned centres.
This is never likely to challenge businesses like SafeStore, Access and Big Yellow, which make up the bulk of more than 11m sq ft of UK space, according to the annual survey by Steel Storage. But it could be a lucrative alternative income, as rents average more than £18/sq ft. ‘It seems a natural progression, as the same skills are involved,’ says Jonathan Price, head of business centre investor B3C.
MLS has literally floated another alternative, buying HMS President, moored on the Thames. It has a deck of serviced offices in a central London location that would be hard to find on dry land but this was not main attraction. It is part of a move into that ugly Americanism ‘venue provision’, which now makes up a significant slice of MLS business.
Managed space skills overlap those organising conferences and meetings, both ultra-short uses that can wring higher returns from property. When occupation rates are running at near capacity and new sites hard to find, this kind of lateral thinking may be vital for growth. The same will apply if demand weakens because of economic unrest. Not every tenant wants storage but it can be attractive to know it is there if needed. Giants like Regus and MLS realised a couple of years ago that even big firms are loath to maintain permanent space for events and meetings. Smaller operators could follow their lead for local centres if cashflow weakens.
Two pillars of the sector have stirred up a storm about the future of the industry.
Stonemartin bet on a business model outsiders had been demanding: high quality accommodation backed by top investors and a board packed with heavy hitters. But the structure is unravelling. The property boom means backers Norwich Union and Britel are looking for a swift profit by selling four of the partnership’s buildings. This has stifled expansion but, more importantly, throws into question the whole idea of linking investors and operators.
Stonemartin has high occupancy rates and a similar reputation for quality. But quality costs, and the six-year-old joint venture has still not made a profit, tempting backers to take the money and run. Educating tenants into the benefits of short-let space could be severely damaged if threats to evict businesses from one of the buildings in Reading are carried through.
Choppy water has also been generated over Regus taking a major holding in online broker Easy Offices. It calls into question whether an agent can provide independent advice when dominated by a major supplier. Managing director Jon Abrahams faces particular criticism because he set himself up as fiercely independent, denying claims by small operators that agents give preference to the giants. He insists this independence will continue but at least one of Regus’s rivals has already pulled out.
So why take the risk? It looks like a calculated gamble. Easy Offices wants to expand abroad and Abrahams felt the best way was to ride on Regus’s broad shoulders. He also insists Easy can provide a service to tenants passed on when Regus does not have a centre in their preferred location.