LESSONS LEARNT BUILDING A DISTINCTIVE SERVICED OFFICE BUSINESS IN ONE OF THE MOST COMPETITIVE AREAS OF THE PROPERTY MARKET
Read the thoughts of Co-Founder of Office Space in Town, Niki Fuchs, on the lessons she has learned when building a distinctive serviced office business in one of the most competitive areas of the property market.
Serviced offices’ growth over the past five years has been one of the most compelling stories in the property sector. From being a neglected sub-sector of the global commercial office market, serviced offices have risen to capture media headlines and been lauded as offering the way of working that the new generation of businesses need to thrive and prosper.
Although Office Space in Town (OSiT) was founded only nine years ago, its heritage is much older as my parents founded the family’s first serviced office business in the 1970s, having imported the idea from the US.
Building OSiT, which I co-founded with my brother Giles, into the successful, distinctive business it is today with a £160m portfolio of London-based office buildings, and a strategy to more than double in size over the next five years, has been challenging. The market’s fast growth has attracted a host of providers and competition is intense.
Below, I outline some of the key challenges that I personally, and we as a company, have had to address and overcome on our journey to making OSiT one of the premier service office operators in London, which is probably the world’s largest flexible office market.
Being a woman in a male-dominated industry
Property is still a largely male dominated sector. However, rather than be discouraged by this, I embraced it. I took advantage of the rarity value of a female entrepreneur in the property sector and the interest shown to secure meetings with agents, building owners and potential funders. All of which were vital to the growth of the business.
While business globally is transitioning from being male-dominated to embracing equality recent coverage of gender pay gaps have indicated, women still face an uphill struggle. My experience has allowed me to better understand the issues involved and this has motivated me to ensure that within OSiT we have a strong agenda of gender equality, equal opportunity and respect for individual talent across the business.
Identifying a gap in the market
Spotting a gap in the market, or identifying a likely new trend is fundamental to the success of most businesses. A good example is Airbnb. The founders recognised that the internet offered an opportunity for homeowners to turn their homes into hotels. In our research ahead of forming OSiT, we realised that there was a growing demand for office space that offered quality, community, collaboration and flexibility, driven in part by the rapid rise of the UK’s increasingly tech-enabled, mobile workforce. Such businesses are reluctant to sign long leases as their businesses are rapidly evolving and as the pace of change across sectors has never been so swift, even larger corporates, which include some of our tenants, are reluctant to commit to such fixed terms.
Choosing the right business model
It’s often tempting when founding a new business to at least adopt some of the characteristics of incumbents on the basis that if they are still in business some elements of their business model are perhaps worth copying. This can often be a mistake and we were determined to avoid this when we founded OSiT.
Having reviewed the market, we decided that the model followed by many existing providers, to lease the buildings that they converted into serviced offices, had inherent risks, in particular in downturns when occupancy levels are likely to fall but lease payments remain constant.
We decided to adopt a freehold model owning the buildings we acquired. This gives the business greater stability and resilience to cope with the ups and downs of business cycles as well as allowing us to inject greater investment into the design and facilities, enabling us to offer the best possible customer experience for our tenants whilst also investing in our asset.
Securing appropriate funding
Having decided on a freehold model, however, gave rise to a fresh challenge – securing the funding to acquire the buildings that we needed. In our early years, before the serviced office sector had started to capture headlines, it was challenging to secure backers. However, we developed and refined our proposition and produced reports on why the sector was emerging as a new asset class and why it was an excellent investment for both alternative and traditional institutional investors.
Alternative investors were the first to be convinced. We secured funding from a large US property fund, Forum Partners and one of China’s foremost property investors. More recently, earlier this year, we signed a deal with RDI REIT, a major real estate investment trust. RDI’s commitment to the sector is the first time that a long-term, income-seeking institutional investor has moved into the market – and will likely be the catalyst for a potential wave of longer-term institutions, such as pension funds and insurance companies, committing funds to the sector.
Establishing a winning product strategy
Given the strong competition in the sector, we needed to ensure our offer was distinct and compelling. The starting point was deciding on their location, to optimise occupancy levels and returns. Our strategy targets commercial properties in London in excess of 25,000 square feet and within a four minute walk of a tube station or rail links. Each office needs to be a profitable business centre in its own right.
The second key element was the quality of our offer to prospective tenants. We decided that the overall design concept needed to be eye-catching and the services offered needed to be of the highest quality. Our freehold model allows us to design and fit out our offices to our own unique specifications as well as commit additional investment to our services
We like to put on own unique twist on our buildings – all our interiors are designed to a unique theme, from Alice in Wonderland to the Great Gatsby, and the high-end luxury of Sunseeker yachts. Our facilities are designed to support a proper work/life balance and included facilities such as gyms, cafes, beauty rooms, bars and hotel rooms. We also have dedicated cleaning teams and facilities managers who ensure that the overall environment is spotless and that the ugly work of ensuring services work is as much a priority as the high-quality of the services themselves.
The pace of change across economies and business sectors has never been more rapid. Both Giles and I understand that we have to continually evolve our offer to ensure that our serviced offices continue to maintain the high occupancy levels that we currently enjoy. We regard every new building we acquire as an opportunity to offer something new, deliver something fresh, whether that is the overall design or the mix of services that we offer.
We have enjoyed our journey in making OSIT the respected business it is today and we take pride in the fact that we have helped our tenants with their own growth story. Hopefully the lessons above will help even more entrepreneurs expand and develop their businesses and be successful.