London Executive Offices has no doubt as to what they mean by ‘executive’. Their mission, as demonstrated in the gorgeous fit-outs at 38 London hubs, is to be luxurious. Top-end serviced and flexible office floorspace gets no better, they hope. David Thame explores.
At this point readers might pause and reflect because, until recently, the whole point of serviced office space was a cheery pay-as-you-go approach, which offered users a chance to trim costs to the minimum, rather than inflate them to a luxurious maximum.
Of course, occupiers could buy the most expensive add-on services and amenities, but the ethic was value-for-money not money-for-luxury.
So is there space for a high-end product in the increasingly crowded world of flexible floorspace? London Office Executive CEO, Jason Leek, is certain there is a market for his 760,000 sq ft of splendid floorspace.
‘People are willing to spend money in order to differentiate, and to ensure a compelling proposition for the market. We would rather spend more, on location and on our product, to deliver something that we know will be in high demand,’ Jason says.
“Our clients can tell the difference between something done at low cost and something done properly”
‘Right now, our focus is on enhancing the assets that we have, and investing in our existing estate. Our investors completely back us in that: they understand that customer experience is what makes or breaks an office environment.’
And good customer experience costs money, something LOE occupiers understand, Jason continues.
‘Our clients can tell the difference between something done at low cost and something done properly. From ergonomic sit/stand desks to iPad-controlled coffee machines, you need to invest in the customer experience to give clients what they want. Yes, we could spend less money, but we know our market, and we know that experience will always win in the long term,’ he explains.
So whilst the commodity end of the serviced office spectrum suffers from oversupply and fears of Peak Flex choking off the market, the luxury end is insulated. Or so the argument goes.
‘We simply do not see anything approaching crisis in the sector,’ says Jason. ‘We are seeing year-on-year growth in demand, more enquiries and more new business leads. LEO has been around for more than 20 years, and we’ve been through the whole economic cycle before. The pace of growth in the market will change over time, of course, but in both directions – that’s the economy for you.
‘What’s new is the number of players in the market, but we see that competition as a good thing: it separates out those who provide a good service, so ultimately it benefits our clients. Not everyone has a sustainable business model, and those that don’t will not thrive.
‘Fundamentally, the serviced sector is here to stay because it gives occupiers what they want. If you’re an SME who doesn’t know where you’ll be in 15 months, never mind 15 years, flexibility is a core business need. The average length of stay for our clients is three years, and fully one-third change their size requirements when they renew with us, underlining the business need.’
Now take a walk across central London and meet Enrico Sanna, co-founder and Chief Executive at Fora. Fora say they provide a premium service, which it distinguishes from the luxury offer of LEO.
The business has six sites launched in London and Reading. This time next year, Fora will have doubled its representation. Enrico’s hospitality industry background is the key to their approach.
‘Most serviced floorspace is cheap and cheerful and standardised, but we offer something premium, and we are able to do that because we own the buildings we operate in,’ says Enrico. ‘If we own the building we can strip them out completely, we do not have to compromise.’
The result is that mechanical and electrical services, ventilation, lifts and other facilities are installed to a higher standard, says Enrico. In a normal landlord-owned block they would be installed to meet average user requirements, and Enrico argues that flexible working is far from average.
‘Here’s an example: look at the ventilation. In a normal office you have occupation at the rate of one person per eight or nine square metres, so the ventilation is set accordingly. But in serviced offices it might be one person to every five square metres, and if you had normal ventilation it would be stuffy and airless. The same goes for overworked lifts, and everything else,’ he explains.
With the residual value of the property on the balance sheet (meaning they can always sell-up and recover their costs), Fora can take larger risks. Hence the premium offer.
“Most serviced floorspace is cheap and cheerful and standardised, but we offer something premium”
Enrico says that, with the right customer offer, the London coworking scene can still grow. ‘Some consultants are talking about it growing to become 20-30 per cent of the office market, but there will only be growth among the serviced office providers with the scale and capital deploy to take advantage of the growth, because – make no mistake – operating serviced offices is an expensive game,’ says Enrico, who predicts mergers and acquisitions in the serviced office sector as the weaker and poorer operators go to the wall.
Enrico says that owning their buildings means Fora is ‘twice as resilient’ as some rival serviced office providers. ‘I don’t know how some of them will survive if we come to the end of the economic cycle. Some of them will not survive, there will be quite a clean out, but a number of operators will be alright and Fora will be one of them. We are here to stay,’ he says.
The up-scale end of the serviced office market is making bold claims. But if it can survive where others fail, it will most definitely have proved its value.