By: Brian Dice, Office Network
June 2008
If you haven't been in an E-suite recently, chances are you haven't noticed one of the biggest changes to occur in commercial real estate during the last five years. As the costs of up-front capital expenditures and project management costs skyrocketed, and landlords insisted on increasingly onerous business terms for conventional leases, the serviced office industry took the opportunity to reinvent itself.
Ask the typical Director of Real Estate what comes to mind when you say "E-suite" and you'll probably hear the following: "Expensive, short-term, turnkey solution" The serviced office industry has been diligent over the past few years realigning the perception of being expensive and short-term, while playing upon the strength of the solution. Utilizing in-depth analytical tools to compare their solution to a traditional lease, accepting multi-year agreements with no-penalty break options, and even including TI dollars are just some of the things that providers across the globe will now do.
The high-tech industry was one of the first to adopt a structural usage of serviced offices for their international small office needs. Leveraging the benefits of short-term service agreements and avoiding costly capital investments, tech companies big and small moved their portfolio of small office locations (5,000 square feet and less) to serviced office facilities. Surprisingly, no end-user backlash occurred: the amenities and build-out in a shared environment are typically better than what a company would spend on their own space, and the understanding that the location was a "permanent" office assuaged all concerns. For example, over the past 12 months Peter Gregory, Director of Global Real Estate and Finance at Parametric Technology Corporation (PTC), has led his organization in successfully utilizing serviced offices across the globe in many different types of field offices. Gregory has estimated a operating expense savings of over $5M in fiscal year 2008, due in large part to the structural usage of serviced office in 20+ locations.
The latest evolution of serviced office providers competes head-on with commercial landlords. A hybrid between the typical office solution in a shared environment and a long-term direct lease, this new product provides companies all of the benefits of their own area (including signage) without the need for up front capital expenditures nor long leases. This "hybrid suite" solution is being offered by providers across the world, from large multi-national operators to smaller regional providers.
Concerns of a global recession, rising costs of construction and the current credit crunch have all real estate directors looking at their portfolio for new ways to save. Serviced offices may offer more than one means of saving money and avoiding unnecessary costs, while increasing portfolio agility.
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