People in the Know: Office Without Borders

Kenneth Ohlendorff, Regional General Manager of C&EE and Nordics Regus Group, believes Moscow to be a highly attractive venue for doing business. The problem Regus has encountered in the Russian capital is finding the right building in the right place.

-Regus Group has offices in 60 countries, but has only arrived in Moscow relatively recently. Why is that?

We arrived in Russia in 1998 and launched our operations in St. Petersburg where we opened our first business center in the Atrium office building. We have been working in Moscow since 1999. It is difficult for me to say why Regus waited for so long before coming to Russia, because I only joined the company in 2000. Besides, the group was founded by Mark Dixon as recently as 1989 and the company was faced with a large choice of regions on which to focus its attention. In particular, London and other European capitals. Incidentally, in 1999 Mark Dixon received the Entrepreneur of the Year award in Great Britain.

Still, I think we arrived in Russia pretty quickly. Regus is now a very large company, but back in the early 1990s things were different. After we arrived in Russia, in 2000, Regus’ shares began trading on the London Stock Exchange. In 2001 the group acquired Stratis, the U.S. business centers franchise chain; in 2004 we took over the largest U.S. office chain, HQ Global Workplaces, in a deal worth $545 million. Most of our business centers are concentrated in the U.S. and Great Britain. In a number of countries, including Argentina, Austria, Hungary, Egypt, Singapore, Japan etc. we have only opened business centers in the capitals.

-How do you tackle administrative hurdles in such countries as Russia?

We maintain a very good relationship with the Russian government. We have had practically no problems here. Regus Group employs a chief financial officer and a team of professional lawyers who attend to all those issues. Of course, in some countries where we launch operations such matters are much more time-consuming than in others, but, I will say it again, in Russia we have had no problems.

-What can you say about your operations in Russia, as compared to other capitals where Regus has business centers?

In all modesty, I can say that we are very successful on the Russian market, as compared both to Europe and other parts of the world.

-Are there any financial figures available?

We are a publicly listed company, therefore we don’t have the right at the moment to cite financial figures in our statements. All the figures for 2004 are available on the company’s website; in about a month the 2005 report will be available. In 2003 the company’s turnover stood at $305 million, in 2004 it reached $545 million.

-Is it difficult to find a suitable office in Moscow, considering the shortage of prime quality space?

The main problem was finding a suitable property in a suitable location. When we succeeded (Regus Group opened a business center in Smolensky Passazh), Moscow immediately turned into one of the most successful markets for us.

-What are the key criteria for selecting a property in Moscow?

Our criteria are the same for all countries. We opt for properties in centrally located commercial districts of the city. Our key requirement - the property in question must be rated as class A. In Moscow we operate business centers measuring 2,800sqm to 9,000sqm. As regards new projects, we would like to find a property of 2,500 to 5,000sqm.

-Do Moscow’s offices match world standards, in terms of technical equipment?

Moscow offices are by no means inferior to others, they are excellently equipped, and there is no difference. As to communication technologies, they are just as good as in London, New York or Paris.

-Regus Group offers a wide spectrum of services, including furnished and fully equipped offices for small and medium-size businesses, conference halls, meeting rooms, and virtual offices providing clients with a prime local business address and professional support staff who take calls on the part of the tenant, forward all the correspondence to him, etc. thus, in effect, creating the semblance of a boisterous office, although in truth nothing could be happening there. That is why such services may appeal to companies involved in semi-legal operations, fly-by-night firms here in Russia. Do you assume responsibility for your “virtual” tenants’ operations and how do you respond if it transpires that their activities run counter to the law?

In 2005, we provided office facilities to 14,000 companies and each year we get new clients. However, unscrupulous firms rarely come our way. We work with top class property, and experience shows that clients pursuing such ends are rarely after such offices. They seek different locations, for example, where they can pay in cash. But we do not rule out that such things might happen. Russian law, however, bans the registration of a legal entity at a virtual office address. All companies must have a legal addresses where they can be sued. When something like this happens elsewhere we terminate our agreement with the client and close the office forthwith.

-Are your Moscow tenants mostly Russian or international firms?

The share of international companies is still larger, but we are glad to see a growing number of Russian businessmen taking an interest in high end offices.

-What is the highest possible amount of money that you are ready to spend on an office? Is there a possibility that you could find a suitable property but be unable to afford it?

Of course. That is the way we act – we begin by examining a property in a suitable location and get a quotation (assessment of its characteristics and class. – Vedomosti), and then draw up an estimate of costs. By that time we already know the amount our clients are ready to pay for the office. If the figures fail to coincide, the deal does not take place. But what may seem too expensive, say, in Copenhagen, may prove acceptable in Moscow, and vice versa.

-In terms of the paying capacity of local tenants, does Moscow stand out against other world capitals?

Market mechanisms in Moscow are similar to those elsewhere. Russia, on the whole, and Moscow in particular is an enormous market. If some company is eager to enter that market, it has to pay as much as it costs.

-Are your rental rates different from those charged by other landlords? Do you plan to revise your rates in the future?

They do not differ greatly from those charged by other companies. We set our prices proceeding from the assumption that we provide services that meet our clients’ requirements, which means, services of top quality at competitive rates. We are providing our clients with fully equipped offices and set the rates not per square meter but for the entire property. The cost depends on location and the package ordered by the client… On the whole, our rates conform to the market rates for class A offices. As for our future plans, if prices on the business center market in general grow, Regus’ rates will grow as well.

-Your business center in Smolensky Passazh opened more than five years ago. Do the rates you charge today differ greatly from what you charged then?

Yes. Our rates keep up with the inflation rate. As for Smolensky Passazh, we are very proud of that project. It is one of Regus Group’s largest business centers worldwide. Recently, we hosted a conference on its premises attended by 850 of our group managers from across the globe. In total, the group employs 4,000 people. By the way, our business center at Smolensky was named the best out of the 750 office centers in our network.

-How do you establish and maintain relations with your tenants?

We hold talks to discuss the entire spectrum of services requested by the client, all the requirements, including the size of the property. If we are able to meet all those requirements, we sign a deal. If a client is ready to pay on spot with a credit card, he can move into his new office immediately. Leases are available for several hours to several years. When opening our business centers in any part of the world we rent properties for a term of no less than five years.

-How do you assess the development of the office market in Russia and other European countries?

Moscow is a very large and rapidly growing office property market. The demand for top class properties is particularly high. Each project to build a class A business center has a very good chance of being leased out at the construction stage or as soon as it is commissioned. That creates certain difficulties for us. At the same time, I see commercial property booming in Moscow, both in offices and retail space. We witness enormous potential in the office sector, but, I would like to emphasize, Regus is not developing the market, we are following it.

In Central and Eastern Europe the situation is completely different. The region is experiencing a kind of recession and vacancy rates for class A offices and the lower classes. Office markets differ greatly from country to country. But even within the same city the situation may vary greatly from one district to another. In Stockholm, for example, where office supply is high, there is a district dominated by IT companies, a sort of a Silicon Valley, so to speak. In the wake of the crisis that hit the IT industry following the 9/11 attacks, 30% of the offices were vacated in the area. In downtown Stockholm, where mostly consulting and financial firms are based, on the contrary, only 7% of offices were vacated. The distance between those two office zones is only 15 kilometers. On the whole, there are not many cities in Europe where the situation in the prime office sector is similar to that in Moscow. I can only name Dublin in Ireland.

-Does that mean working in Central and Eastern Europe is easier?

It’s easier to find a suitable property, but not the staff. The people we work with in Moscow are true professionals. I have to admit that we were surprised that we managed to build such a strong team. All our Moscow employees are Russian nationals, no expats here.

-Are you considering any expansion of your operations in Moscow?

Regus runs business centers in three office complexes across the city. In addition to Smolensky Passazh, in 2005 we opened a business center at Capital Plaza, and another one at Aurora Business Park in February 2006. We have far-reaching plans to expand our presence here. We have already selected 25 sites that are of interest to us. Our experience, though, shows that where we plan 25 potential locations the result is usually 4 to 5 or 2 to 5 new business centers.

-Are you talking merely of some appealing locations, or properties already developed or under construction?

I am talking of new properties. Today a major development is underway in Moscow – Moskva City – and, of course, such a large company as Regus should watch all the events on your market very closely. We are taking a great interest in that project. Research carried out by our company has shown that the most successful sites are those situated on the Garden Ring or close to it. We have no restrictions concerning the districts. We attach the utmost importance to our would-be clients’ wishes. What we have seen in Europe shows that the demand is growing and business parks are moving beyond the city limits. This is likely to happen in Moscow, too, and is happening already. For example, the Krylatskiye Kholmy business center has already been built and I think that project is not the last.

-And would you like to open a business center at Krylatskiye Kholmy?

No, it is fully leased out, and besides it does not meet our requirements in terms of location.

-Do you plan to launch any projects in other cities?

Yes, but so far I cannot name exact locations. You see, right now a special exploration team, so to say, is looking into various regions and cities – cities with populations over 1 million, of course. In the future I expect a detailed report from them, whereupon a decision will be made.

-Does Regus take an interest in the capital cities of other former Soviet states – members of the CIS?

Yes, we have already opened a business center in Kiev, and we regard Ukraine as a country where further expansion is possible. We are also examining the situation in other countries, but no decision has been made yet.

-Does Regus face serious rivals in Central and Eastern Europe and Russia?

We don’t have a pan-European rival, but there are some smaller companies in Stockholm, Munich and Copenhagen who are our rivals

-What do you think of their potential?

Some of our rivals do a very good job. Such business centers are also present in Moscow, but their business is based on a different approach. In Moscow it is virtually impossible to rent a class A property for less than 12 moths, while we set no restrictions. We offer office properties in the form of small separate offices, large offices or offices for temporary use. Our clients have access to state-of-the-art conference halls. Today, the company has over 3,700 meeting and negotiating rooms. The holders of the Regus Network Access Card can work in any of Regus’ 750 business centers worldwide.