Best ever market for servicedspace

Copyright: David Lawson

First published: Property Week March 2008

Rolling heads are a sign that things are not going too well. You can’t move nowadays for decapitated remains in the City and Canary Wharf,  so the demise of managed space veterans Colin Peacock at Stonemartin and Forsyth’s Jane Gwillim-David might be seen as sign of meltdown.  Far from it.  The last two months have been the best ever for serviced space, says Rob Hamilton, managing director of Instant Offices Group. Enquiries and deals are up by 20%.

  Perhaps Mark Dixon was right after all when he set up Regus based on the idea that small businesses are unaffected by recession and bigger ones opt for short-term space when times are uncertain. That did not work in the last downturn but Dixon kept his head and the theory seems to be holding up this time.  Occupiers are now more comfortable with juggling between types of space, says Officebroker founder Jim Venables, another agent seeing record activity. Operators are also becoming more sophisticated as the market matures. Instead of developing property then seeing if serviced space will work, they want evidence of demand, which is why Officebroker has launched its Insight service, showing trends around the UK.

  In London banks and financial services companies have increased take up by almost 75% as they contend with the credit crunch, says John Spencer, chief executive of MWB Business Exchange [MWBEX].  He expects this to continue after the crisis abates, however, as occupiers learn to better manage property risk.  So everything is hunky-dory? Not quite. Stonemartin is still active but a flawed business model has stifled expansion, so founder Colin Peacock is no longer required. Forsyth has abandoned a £200m expansion plan which brought Jane Gwillim-David on board as chairman last year.  ‘We are no longer looking for leases and freeholds,’ says director Scott McCabe. Forsyth will rely on property being brought in for management.

   Evans Easyspace is happy with a 45% increase in enquiries and lettings at in 2007 and MD Tom Stokes sees no evidence of downturn. Like MWBEX, he concentrates on small businesses, which ride out economic shocks, and is continuing to build. But he has stopped buying existing centres until the market bottoms out.

  Even the rampaging beast has changed its spots. Sheer size is no longer the driving force behind MLS, says sales director Ian Kibby.  He admits the firm has gone for growth to rival Regus as the largest UK operator but MLS is now ‘far more picky’ about which projects to take on.  It is still aiming for 200 centres in five years but focussing on ‘sustainable’ profits. Chasing occupants with reduced fees brings a harsh lesson when tenants move on after discounts end, he warns. ‘We have increased prices 18% in the last year and still had 2,500 inquiries in February, far above the monthly average,’ says Kibby.

   As ever, David Alberto walks his own path at Avanta. After seeing markets ebb and flow over the last decade, he is underwhelmed by a 10% rise in inquiries and slight rise in fees. But the correction in property values has brought him back into the hunt for new premises. Strictly around London, of course.  Like MWBEX, he sees regional centres as a source for management agreements rather than accumulating assets. And he is not convinced they are booming as much as some believe.

  Unlike Spencer, however, he is looking abroad to hedge against any downturn. While MWBEX has forsaken overseas ambitions, Alberto is spending half his time in India after opening three centres there and has more to come in areas like the Middle East. Agents are also spreading their wings. Officebroker is now established in Dallas while Instant Offices is forecasting a turnover of more than £23m for 2008 as it expands across the world under new chairman Patrick Diggines

  Meanwhile, homebodies are dreaming up ways to broaden appeal. MLS is going up-market with ‘six star’ centres in Birmingham and London.  MWBEX has launched a ‘partnership’ service, where it will lease space for clients if it does not have the stock. The NHS has been provided with 500 desks in its own building, Vantage House, Leeds, in a 10 year management agreement. MWBEX is also marketing surplus space for clients by using its own network of contacts rather than agents.