In conversation with… Office Space in Town

BE News - Simon Creasey - 30 June 2023
Simon Eastlake and Niki Fuchs
5 min read
Published: 11 Jul 2023 10:18

Now, under Eastlake, it has aspirations to open single buildings of 250,000 sq ft and is also considering overseas expansion. BE News caught up with Niki and Eastlake to talk about the operator’s ambitious expansion plans and the challenges and opportunities facing OSiT in the coming years.

Niki, what was the rationale behind taking a step back from the business and appointing Simon as managing director?

Fuchs: Well, Giles is 57 and I’m 55, and back in 2018, Giles and I realised that if we wanted to have the best in the market working for us, and we wanted to ensure that we were tapping into the ever-growing demographic of businesses looking to take on flex space – because people setting up businesses are not necessarily our age anymore – we needed to ensure we had a young vibrant team to run the business.

So, in 2018, Giles and I decided we needed to have a proper succession plan and we approached Simon, who was the development director at the time, Georgia Sandom, who was a general manager, and Sarah Singlehurst, who was the sales and marketing director, and we started working with a management consultancy on our long-term strategy, what we wanted the business to look like, the different opportunities for growth and what we needed to do to bring on a management team to look after the business in the future.

As you know, we hold the concept of family values very firmly and that doesn’t necessarily mean that those people who own and run the business are family members, but those family values have to run through it.

What happened then?

Fuchs: Simon and Giles started working on trying to get as much ownership of the business as possible because one of the biggest problems for us was that we were a minority shareholder in the business and we were always at risk of the majority shareholders exiting, so we always had to stay ahead of the curve.

Churning our shareholders would be expensive and time-consuming, so last year we did a deal with PGIM, a large American real estate fund with a global reach and over £210bn under management. That gave us control and it was a good line in the sand for Giles and I to say: “OK, it’s time for us to not just take that metaphorical step back, but the actual step back, and to leave the gap for the new team to step into.” So that’s what Giles and I did in July last year. We handed the reins over.

How far have you got through the process?

Fuchs: We’re by no means all the way through the succession planning. Simon, Georgia, who is now the operations and ESG director, and Sarah, who is the sales and marketing director and co-founder, have had a challenge on their hands in grabbing the reins of the business from us, but they’re doing a great job. There will be another reshuffle in the not-too-distant future when everything’s settled down as to what it’s going to look like in the future.

So, at the moment and you and Giles still heavily involved with the business on a day-to-day basis?

Fuchs: No. Giles has taken the biggest step back. He is more focused on mentoring Simon. So, he has stepped back from CEO to founder and I have stepped back from MD to CEO. I guess I am mentoring and managing the new management team with a soft touch.

Simon, you were in a fortunate position in that you were taking on a strong business with a recognised brand.

Eastlake: Definitely. And also I’ve been part of the business for the last 10 and a half years so I’ve been very much exposed to it. We came out of Covid successfully. I’m an eternal optimist, so I will always look on the side of positivity and I’m very positive about flexible offices. I always have been, right back to when I first started selling flexible offices to where we are now. I know we have a great product, a great culture and great staff. Convincing someone like PGIM to do the deal when we were the first flexible provider they’ve ever put money into at a time when a lot of people were against offices has really buoyed us all on and, hopefully, we are set for bigger and better things.

What is the main lesson you’ve learned from Niki and Giles?

Eastlake: One of the biggest things that Niki and Giles empowered in everyone in the business is the ability to make a decision and this is something I’ve learned from both of them. It might not be the right one, but make a decision and if it is the wrong one, then fine, we can all work together to solve it. That culture means you can really move forward as a business in everything you do.

Will the business strategy going forward be noticeably different?

Eastlake: Watch this space. From a culture side, we all want to keep the company culture going because that’s what made us so successful. From a business point of view, we want to grow. We’re in a great place. We’re over pre-Covid levels: occupancy, desk rates and meeting rooms have gone through the roof. So, it’s very positive out there and I think there are going to be some opportunities.

Obviously, we want to buy and we’re also looking at management contracts – we’re looking at ways to help landlords. Niki has spent 30 years putting policies and procedures in place to enable us to run flexible offices, whether they’re in our own buildings or in other people’s buildings, so we might as well use those and use that expertise. We’ve got all the back-office systems to be able to do that.

So, what’s the plan?

Eastlake: We always wanted to grow and Covid stopped us. The one difference going forward may be that we look to go bigger on the buildings because that’s where I see flexible offices going.

We’re seeing a lot of leads where people are looking for flexible offices for 100, 200 or 450 people. Coming out of Covid, people are looking at their leases and saying: “I don’t want to sign. I don’t know where I am. I’ve got 500 staff, but I don’t want to lease a building for 500 people. However, I can rent some flexible space and try out my hybrid working policies at no risk.”

At the moment, our buildings don’t allow us to support those requirements because we won’t sell more than 15% of the available space to one client and our buildings therefore aren’t large enough to provide the space for clients with such large requirements.

How much bigger are the buildings you’re looking for?

Eastlake: You will have heard lots and lots of people talking about the ‘hotelification of offices’, and that was basically my elevator pitch 20 years ago. What I used to say was: “We’re a five-star hotel for businesses. You don’t stay for a night; you stay for a year because we give you all the amenities you need as well.” That’s what flexible offices have always been and now everyone else has realised and they’re now trying to copy that.

So, our feeling for the business is we need bigger buildings with a lot more amenities. We’re looking at having things like hotel suites, restaurants, gyms, doctors, nurses and dentists on site and that will probably all be subsidised because employers want people back in the business, so how do you attract those people?

Most people stay at home to see a doctor or a dentist, but if you put those in the buildings and they’re subsidised, it will of course help to attract people back to the office.

So, we are looking at stepping up into 150,000, 200,000 or even 300,000 sq ft properties. We will do two or three of those and then we will look to maybe go elsewhere in the world. It’s an exciting prospect.

What sort of arrangement would you be looking for on those buildings – leasehold or freehold?

Eastlake: Ideally freehold, if we can. I don’t mind if the building is not very ESG-friendly etc, because our usual business plan is to strip to the shell and redo completely anyway. So, that’s where I see there being some real opportunity for us, because we are happy to spend the money to get that building up to a future-proof level and that gives us the capital gain as well. This is also a very sustainable way of developing property and more and more important in the current climate.

Do you expect to take advantage of any distressed asset sales this year?

Eastlake: Yes. We’re already seeing that in some of the opportunities that are being presented to us.

In terms of the wider flexible office sector, do you expect to see more consolidation and M&A activity?

Fuchs: We thought we were embryonic in the 1980s, but I think the reality is, we’re still an embryonic industry and we’ve got a long way to go and we’ve got to go through that whole cycle. I don’t think we’re big enough to say we’re in the mergers and acquisitions zone. I think we’re way off that. If you think about the amount of flex space offered in London, the UK, or major cities around the world, demand for flexible space is growing and the forecasters say that availability will not meet demand shortly. There are going to be lots of new operators entering the market looking very different. Some will survive, and some will consolidate and grow.

How big a threat to the flexible space industry are landlords looking to offer this type of space themselves?

Eastlake: We’ve seen some try and some are definitely struggling, but that gives us an opportunity to be able to step in and help those landlords run all that space as part of an overall offering for them.

It’s going to be interesting to see how that all pans out because you’ve got the traditional asset manager who thinks: “Oh, I could do this flexi thing myself – it’s really easy.” But suddenly they realise they really have no idea what they’re doing because to provide the level of flexibility and service that a dedicated flexible office provider offers you have to speak to your customer on a weekly if not daily basis – not just at the lease renewal every five years. So, it’s a very different skill set. There is a level of demand for flexible space currently that is out-stripping supply so there is an opportunity for landlords to cash in with the right partner and support.