Flexi Time - Serviced office providers are seeking to exploit the credit crunch

The growing spectre of recession in the US may have caused developers and investors in the UK to abandon their expansion plans, but it has had the opposite effect on serviced office providers.

Instead they are trawling for office space in the City of London and Canary Wharf in anticipation that the US banks and other financial services occupiers will shed jobs over the next six months and need short-term accommodation until the downturn subsides.

In April Abbey Business Centres is due to open 28,000 sq ft of serviced offices on the 37th floor of One Canada Square at Canary Wharf. This is in addition to 28,000 sq ft it has at the Swiss Re Tower at 30 St Mary Axe. It has followed the example of MWB Business Exchange, which has opened 34,322 sq ft at 55 Old Broad Street and 18,500 sq ft at City Tower.

Regus has also confirmed it has been approached by financial services occupiers in the City that want to trim surplus office space in the months ahead.

Scaled back

‘There are a lot of serviced office providers who are positioning themselves to try to take advantage of what has been happening in the US over the last few months,’ says Julie Calder, managing director of Abbey Business Centres, which now has 13 centres across the UK and 4,000 workstations.

Calder says financial occupiers are more willing to consider alternatives to traditional leases in the City and Docklands now that their market is racked with uncertainty. The Centre for Economic Business Research predicts that the City will shed 8,000 jobs this year.

‘For corporates, it is something they are beginning to look at because of all the volatility in the world’s financial markets,’ says Calder. ‘They do not know whether they are going to need to lay people off and when, or if, they will be able to expand again. As a result, they are shying away from the traditional long leases and looking instead for short-term leases with more flexibility.

They are looking for space that they can walk away from if they have to.’

Occupiers confirm this. Accountancy firm PricewaterhouseCoopers says it expects to be targeting short-term office accommodation over the next year. It is moving 6,000 staff to More London in 2010 for its main operation, but says that serviced office accommodation is rising up the agenda to accommodate its subsidiary offices.

Paul Harrington, PWC’s real estate director, says that serviced office providers have begun to tailor their services towards traditional corporate occupiers who until now have only ever considered long-term leases. But since the beginning of the credit crunch in August, many of those occupiers have had to reconsider their position.

‘There is a real opportunity here for those serviced office providers who can prove to corporate occupiers that they can provide as good accommodation as some of the smaller landlords out there,’ says Harrington. ‘They could even start to challenge some of these landlords if they play their cards right.’

Harrington says that for the last year PWC has been leaning towards the use of serviced offices for many of its subsidiary businesses.

‘Quite often it is better to go for a two- or three-year lease while you test the water to see whether a certain enterprise is going to work. Then when you have built up that base, you may then later look to a more long-term arrangement.’

Short-term accommodation

He adds that corporate occupiers are now moving further towards the concept of a balance between long-term leases and short-term accommodation.

‘They don’t want to find themselves in a position where they have taken a long let of 70,000 sq ft and then do not need 20,000 sq ft of it, but because of worsening market conditions, they cannot shift it,’ says Harrington.

‘When faced with that kind of proposition, serviced offices begin to look more attractive before because then the space is a lot easier to walk away from.’

MWB Business Exchange, which has a portfolio of 57 centres and 15,500 workstations, says it is targeting corporate occupiers that may need to make drastic staff cuts over the next six months and may have to rein back their office requirements.

‘The US occupiers operating in London are facing a very uncertain time,’ says John Spencer, chief executive of Business Exchange. ‘Either they are already over here and they have to consider whether they need as much office space as they have got now, or they were considering coming over to London and are having to think about downsizing their plans.’

In a bid to make serviced offices a more attractive proposition to occupiers generally addicted to long-term leases, MWB has decided to ‘debrand’ its premises. Its new centre at Old Broad Street does not include any MWB livery and its staff all wear plain black uniforms.

‘It is not a case of a particular corporate not wanting to be seen in a serviced office,’ says Spencer. ‘It is more that they want to be seen in their own premises. That image is very important to them, so we have made the centres less about us.’

Eye of the storm

Peter Cookson, managing director of corporate outsourcing at Regus, says there are striking similarities between now and the internet crash in 2001. During that period, technology companies that had taken space, particularly in Thames Valley, were hit hard. This time it is the financial services sector that is in the eye of the storm, but Regus expects the impact to be the same.

‘In 2001 you had all these technology companies who suddenly had a lot of space on their hands that they didn’t need,’ says Cookson. ‘What we did then and what we are doing now is talking to these companies to see if we can let their space to our clients. It is fair to say we have been getting a lot of enquiries from corporate occupiers who need to scale back their space in the City.’

The key to success for serviced office providers will be to provide nomadic occupiers with the standard of accommodation to which they have become accustomed. ‘It will all come down to whether the people who decide to use the serviced office route during this period think it is a viable alternative,’ says Harrington. ‘Whether it be Regus or MWB or whoever, they have it all to play for at the moment.’

By Mark Shepard - Property Week