Business Centre Reflections

Although this blog has hitherto been restricted to business centre issues, I feel I must warn all readers about the deplorable attitude and bad behaviour of Egg Bank. If a customer misses a payment, as I confess I did recently, the bank subjects you to a barrage of telephone calls to every number they can lay their hands on, texts and emails. Not only is this dubious practice in itself, Egg continues to do this even after the customer has rectified the error and made the payment.

If the customer has the temerity to complain about this unjustified harassment, Egg is not competent enough to respond within the period set down by law and when it does finally get round to replying, it merely apologises, as though that were enough.

Please avoid Egg Bank wherever possible if you want to avoid this sort of behaviour as you can be sure that if they do this, they do lots of other nasty things too. I shall be making a complaint to the Financial Ombudsman, but I don;t expect anything to come of it. A class action against Egg on the other hand might get it to change its behaviour.

I saw reported in May 30 Estates Gazette that Patrick Marples is leaving Workspace. Workspace is an interesting company. I had a few shares in my SIPP for a while, but sold when the price got too high and the yield below 2%. Not really a business centre company, more of a managed workspace owner, its main focus has always been on the value of the real estate rather than on the service income.

Over the years I have had various conversations with Harry Platt, the CEO about the nature of Workspace as in many senses it is a property company, though Harry always denied this claiming it is a "property based service business". The market seems to have viewed it as a property company and it has suffered from the general malaise in the sector particularly as most of its assets are sub prime and sub prime assets have fared worse than prime properties.

I see that DTZ are claiming that City real estate now offers good value as the prices have fallen so far (FT 8th June) but that the rest of the world has further to fall. Anglo-centric? Moi?

Anyway returning to Patrick, he was a fairly classic chartered surveyor in outlook and his presence seemed to confirm the focus on real estate values. I wonder if his departure is just cost cutting or a change in emphasis?

MLS was the company everyone loved to hate in the UK business centre industry. Either it opened too many centres, or it priced its workstations too cheaply, or it didn't pay its suppliers on time, or it didn't pay its landlords on time or it and its management were just plain odd.

All of these things were true at some point at least and now, after surviving many months of rumour and speculation, it finally has gone. The only centres still trading under the MLS brand are believed to be those in India. The UK network has been broken up with locations being taken over by MWB, Citibase, Forsyth or other stronger operators or closed down altogether.

Whatever one might feel about MLS while it was alive, its departure was well managed with little, if any, comment appearing in the press and few clients losing money as a result, although some were inconvenienced by having to move out at short notice no doubt.

The fact that MLS has been the only casualty of note in the business centre sector is proof if any were needed of the resilience of this industry in difficult times. The contrast with the property industry in general couldn't be more clear. Whereas the Estates Gazette and Property Week carry stories of property companies going bust in every issue, the counter-cyclical strengths of business centres have proved critical once again.

As any reader of The Estates Gazette or Property Week knows, the demand for office space in the conventional office sector (the non flexible sector) has fallen sharply in 2008. This is not true for the flexible, managed sector. On a visit to the excellent Abbey Business Centre in the Swiss Re Building in the City of London, better known as The Gherkin, I was unsurprised to be told by Abbey boss, Julie Calder that the centre was completely full.

In general well located centres in central London are full, and those in outer London are still well occupied. Outside London the situation is more mixed, but across the industry as a whole the situation is much brighter than it is for conventional office space.

Why is this? The business centre industry has a strong counter-cyclical element to it. Although it is of course affected by recession, the way that businesses react to a down turn, by avoiding new long term commitments and seeking flexibility, favours business centre space.

In every down turn, some companies try business centres for the first time. Of those newcomers a certain percentage are permanently converted by the levels of service and convenience and never leave the sector. Recession is the biggest recruiter for business centre clients.

According to a Financial News headline this morning, investors are withdrawing large amounts from UK property funds, influenced no doubt to the wave of articles from journalists about how the property market has peaked and is about to crash.

Apart from the obvious comment about the herd like mentality of investors, I would like to reflect on the appropriate asset allocation for an individual investor. To my way of thinking the starting point, or rule of thumb for an individual investor should be one third equities; one third cash or fixed interest and one third property, not counting the house that you live in. You don't count the house for the same reason you don't count the car you drive or the clothes you wear, because they are primarily working assets, not investments.

If this rule of thumb is right, UK investors remain woefully underinvested in property both directly and indirectly, with the average institution only 4% in property and many smaller funds having no investment in the sector at all.

My conclusion is that we remain hypnotised by the cult of Equity.