Office nomads

I don't normally comment too much on individual company trading updates, but recent comments from Regus, a UK office rental firm, opens up some interesting points on the asset management business and the office property market.

In case you haven't come across them, Regus effectively allows companies (or individuals) to hire out meeting rooms or offices on shorter-term leases. In many cases you can also hire some IT support and catering (all for a fee, of course). Taking London as an example, they have several sites dotted around the city, particularly in the the major financial hubs of the West End and the Square Mile (Canary Wharf is dead right now, fyi).

When it works, it is a high profit margin business, since the rates being charged are sky high. And you get charged for EVERYTHING, including sugar for tea or coffee (I kid you not!). They provide fairly lacklustre business support, as they know you are dependent on them - after all, it does a firm no good to its reputation to keep moving addresses.

The more subtle point is that these buildings are a good barometer of the fortunes of financial firms, particularly small and mid size ones. Whenever I have to attend a meeting in one of these places, I wander about a bit to see what sort of firms are there. Trust me, the names on the board at reception change every week! And up until recently an alarming number of them were one room affairs...not exactly confidence-boosting. Yet a Regus office in (say) Mayfair offers a veneer of respectability - a nice postcode to have.

Needless to say, many firms are disappearing in the current climate. And as the nearby office blocks (with ever increasingly large "to let" signs) are not filling up, it either means landlords haven't started to lower their rent demands, or many firms are simply going bust. In all sincerity, I think it's a combination of both right now.

The bottom line is that if you are looking to rent offices in London, hold out - the yields have far to widen.