A Glimpse into the Future of the UK Serviced Office Market

Outside the serviced office industry, CEO of Regus PLC Mark Dixon is not generally thought of as an intellectual. In fact he would be more likely to be associated with hot dogs than with industrial wisdom by the average newspaper reader. It would be a mistake to underestimate him, however, as under that pleasant, friendly exterior lies a determined and intelligent entrepreneur who thinks deeply about the future.

I was particularly interested by a series of interviews he gave at the end of October in which he set out his views on changes taking place in the way we all work and the impact on office use.  “People were still building cotton mills in Lancashire two or three years before the industry just disappeared,” he said. “So much of the office space that’s being built now, people just won’t want to occupy in future.”

Mark Dixon foresees that there will be a lot of empty office buildings around particularly in out of town office parks. He predicts that city centres will survive as office locations, but otherwise people will work from home or from small, flexible offices near where they live.

His views are supported by research done the large international realtors such as GVA Grimley who found that more than 80% of financial services, oil, mining and utility companies thought they had too much office space. In the recession these companies are seeking to reduce costs by using less space leading to an increase in subletting of surplus space by corporate tenants and downward pressure on rates because of surplus floors or whole buildings.

The implications of this are, first, it will be even more important to choose the best location for a business centre; avoiding locations where workers have to commute long distances by car is a good idea, and second, business centre operators will themselves have to be flexible in terms of what they offer to their customers, and ready to adapt to changes in both what clients want and who the clients are.

Apart from Regus, one operator to watch in the UK market in 2010 is The Serviced Office Group PLC, whose shares are quoted on the London Stock Exchange Alternative Investment Market under the EPIC (ticker) code SVO. In a flurry of activity at the end of 2009, SVO announced what seems to be a very interesting deal.

The key elements are an investment of £900,000 (approx US$1.5 million)  in SVO by Andrew Bourne, CEO of Bourne Financial Services, the operator of a large business centre in Broadgate in London’s financial district. Made through a trust of which Mr. Bourne is beneficiary, the investment will take place in three stages, at the end of which Mr. Bourne will own 22.5% of SVO. He will also get a seat on the board of directors of the company.  SVO has simultaneously been appointed to manage the Broadgate business centre, thus adding 585 workstations to its portfolio, bringing the total to 3,693.

Shortly after this announcement followed a further announcement that SVO had successfully renewed it principal banking facility for a further three years, thus removing any concern investors might have about its ability to finance its operations.

The Chairman of SVO, Michael Kingshott, a well known figure on the British real estate and serviced office scene, made clear is his comments about the investment and the facility renewal that SVO expects to continue its programme of expansion through 2010, taking advantage of whatever opportunities may arise.

The Stock market responded favourably to the announcements rising 10% from its mid-December low to finish at 2.5p per share.

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