Serviced Offices Upbeat Despite Shifting Loyalties

The dynamics of serviced offices are as dependent on the state of the market as any other category of property. Even then, there are subtle differences underpinning the way serviced offices fare during periods of boom and distress. In a marketplace that is steadfastly on the up and up, the larger corporate houses and businesses are only too willing to look at serviced offices as an option rather than opt to lease offices of their own. But when the market goes into freefall mode, the very same tenants would rather use their bargaining clout to seek out premises of their own at rates they are comfortable with. "At the beginning of 2009, we were full. Occupancy has now dropped by 20 to 40 per cent," says Steve Mayne, director of sales and operations, Sentinel Business Centre, a serviced offices provider in Dubai. "A lot of our larger customers moved out relative to the reduction in office costs." The shifting loyalties of its larger clients has not unduly perturbed Mayne, who says: "Our core market is smaller customers.

Our low start-up costs and capital expenditure are attracting foreign businesses who want to test the waters in the region." In terms of location advantage, Sentinel has got it just right. No commercial address can carry more prestige than Number 1 Shaikh Zayed Road, which is the location of the Monarch Tower in which Sentinel has taken on 120 office units. A revival in demand after last summer generated enquiries for office space and sponsorship alike for the company. The present tenant mix includes quite a few blue-chip entities such as Bloomberg, Cisco and Morgan Stanley, as well as start-ups. Businesses with a registered office address in Dubai that are seeking additional space have contributed to driving up occupancy rates at Sentinel. "Because their expansion plans are not worth taking a new floor for, they opt to use us for that requirement," says Mayne. People made redundant and exploring the option of self-employment are also showing a preference for serviced offices. "Normally, businesses need to pay upfront for acquiring a trade licence," the official says.

"We split the costs of establishing an office and trade license and charge the tenant monthly. We want to help improve cashflow within businesses." Serviced offices, however, need not be synonymous with short-term leases. While the average lease tenure is for approximately seven months, there have been instances of tenants renewing their two-year contracts with Sentinel. Staving off competition from affordable (made so in the aftermath of the market correction) shell-and-core office units and incentives from landlords, Sentinel's promoters believe leasing a furnished serviced office is still cost-effective for tenants. In line with the slide in value of office leases, its rates too have dropped by 40 per cent since their peak.The undersupplied commercial market in Abu Dhabi does open up opportunities for serviced office initiatives. "Availability of high quality office space is quite limited in Abu Dhabi," Mayne says. "When we were looking for options a few years ago, the government departments were snapping up office space." Down the line, Sentinel intends to launch serviced office facilities in Qatar, Bahrain and Oman when market conditions ease up a little.