An easy future for the office?

If the downturn in the property market has shown anything it is how the significant costs of office space affect the average business. Across industry – from office to retail – businesses have tried to tackle debt and save money by shedding their property portfolios.

The leasing or mortgaging of property makes up a significant amount of companies’ expenditure. The Business Location Survey, conducted by the Forum for Private Business at the end of 2009, found that property costs were of ‘serious concern’ to nearly half the businesses surveyed and ranked above all other outgoing cost concerns. Those surveyed regarding office property suggested costs absorbed around 30 percent of their outgoings.

One only needs to look at the condensing of space that has occurred recently in both the private and public sectors to realise this is the area where businesses are choosing to make savings.

Even in the age of internet sales and email contact, there is still seemingly a symbolic requirement or attachment for businesses to have a physical presence in an office if they are to be taken seriously. With the power of software that allows potential clients to view their next business partners, businesses working out of – for example – an impressive office locations are more likely to win contracts than those run from a small industrial estate or from home.

This mindset can have a damaging effect for businesses. For start-up companies, the cost of a full time lease when they are in their infancy can be beyond their means. Even for medium sized businesses, the cost of holding down a main office along with required satellite offices around the UK (or even the world) can be just as prohibitive.

This issue has not gone unnoticed by certain organisations. Business centres are not a new idea, but in the current economic climate they are becoming increasingly popular prospects. Business centres essentially offer office space of variable sizes, typically much smaller than the average office, that companies are able to rent out from which to do business.

The market for this type of operation is clear. Nearly 90 percent of UK businesses employ fewer than 10 people, and most office spaces for rent tend to be larger than such businesses require. As such business centres can not only provide desks for such companies but often expand or contract the amount of space that a business rents dependant on needs. Centres may also include meeting and board rooms that can be rented by the hour.

These locations also give support to fledgling businesses. Most centres offer simple but important services, such as a secretarial position to field calls and an all important mailing address that can often give businesses the professional edge. Other centres offer services to meet more specialised needs, whether that be legal or financial advice for mainstream business or scientific advice for up-start research and development companies.

Business centres can also offer a unique boost to morale. Often housing dozens of businesses at various stages of development, they not only promote a sense of community but often foster an informal network between these small companies for sharing experience and advice.

This model is a growing phenomenon for UK businesses and one that is by all accounts expanding. Fledgling companies have mostly weathered the recession as they don’t tend to have excess floor space or staff. Meanwhile, the wealth of Grade B property available and the willingness for developers to work at reduced rates has seen new centres opening up across the UK.

With the possible profitability of this building model, it’s unsurprising big business is taking an interest in the sector. And they don’t come much bigger than the empire of Sir Stelios Haji-Ioannou. Owner of the no-frills ‘Easy’ brand, his empire includes the renowned budget airline, easyJet, as well as car rental firms, cruise liners, a bus network and hotels. His next big move is his office rental plan, easyOffice.

Running on a similar line to business centres, easyOffice entered the market in 2007 on a similar pitch to that of existing suppliers but with a reduced time span. While most business centres ask occupants to pay rent quarterly or sometimes monthly, easyOffice operates a system whereby access to office space can be granted from between one week and three months, with subsequent bookings available after that date. Options range from one to seven desks and the cost of a single desk starts at £35 a week – cheaper than a square foot of property in some locations.

Additional services, such as meeting rooms and secretarial support are also available.

The main benefit of the easyOffice operation though is its locations. Though predominantly London-based, the buildings are in key business locations, such as Canary Wharf, Mayfair and Old Street near to the City. New properties are also being acquired in Manchester, with the purchase of Devonshire House recently agreed.

In the current market, the easyOffice business model could be seen as a successful property vehicle; a means of buying up excess Grade B office buildings at the current lower end market prices, making a reasonable return through renting the space in them to businesses and then sell them off when required. Sir Haji-Ioannou has stated however that he views easy Office’s products in more philanthropic manner: “I consider myself an entrepreneur and as such I have designed the concept of easyOffice with fellow entrepreneurs in mind. It is for people who start their own business and now need the convenience of some office space but without the burden of a long term lease.”

In the case of either of the above business models there is clearly demand for the easyOffice service, as recent expansion suggests. It’s easy to theorise why this is the case as well; companies are required to be wherever the business is at that time. And as part of that they need a location to form their base of operation. There is little sense in setting up a fulltime office and committing to long rents when business interactions may only last a couple of months.

Committing to a year long lease does not necessarily make business sense.

Short-term rental as a model also has strong potential as demonstrated by the retail rental market. As reported in previous issues, there has been a strong rise over the past few years in retailers taking up short-term leases on retail outlets to trade for just a few months then move to another location. For some business, running a short-term investment or promotion campaign, to have access to similar products and services in terms of office space is likely to prove very handy.

But the best explanation to suggest why the easyOffice empire will be successful is that it is backed by Sir Haji-Ioannou. His status as a shrewd businessman is renowned and his achievements can in part be measured by his personal wealth of around £544m, which puts hiim at number 81 in The Times Rich List of the 100 wealthiest people in the world. Rarely has he made an ill-judged investment, and even those he has made have been turned around into profitable models. As such, easyOffice is likely to be a model for successful return and it would not be surprising if other commercial competitors did not attempt a similar business model in the not too distant future.

This new approach to office space won’t necessarily see businesses give up their long term locations in pursuit of a short-term lease overnight. Yet it will open up new opportunities for start-up businesses and people who need a temporary presence in a time where the economics are increasingly against this happening.