The sweet life for office renters - executive-suites industry - Industry Overview

Nation's Business, May, 1996 by Lynn Woods

An executive-suite firm can offer a convenient, cost-efficient alternative to conventional office space.

Almost a year ago, Martin Cohen, a New York City business consultant, traded in the traditional office space he was leasing in a commercial building on Madison Avenue for a furnished office on Park Avenue.

The new office came with a receptionist, a phone-answering and -forwarding service, conference rooms, and an on-site business center that provided the equipment and staff for desktop publishing, word processing, faxing, photocopying, videoconferencing, and other services.

Cohen says he's paying slightly more than he did before, but he's getting more for his money. "Before, my overhead wouldn't allow this," he says, referring to the telecommunications and videoconferencing services he now has.

Using the on-premises support staff means he does not have to hire full-time help, pay insurance benefits, or worry about whether the receptionist will show up late for work, because a replacement will be provided.

If his personal computer breaks down, Cohen can use the word-processing services at the business center.

And he routinely holds meetings with important clients in one of the building's three conference rooms--at no extra cost beyond his monthly space-rental rate.

The result? A 40 percent increase in business since his move. "Because of the professional setup, my business is geared to larger clients," explains Cohen. "And the amount of support services means I can respond more quickly" to new opportunities.

The concept of virtual offices--or executive suites, as they are more commonly known--was introduced in 1967, when San Francisco-based HQ Business Centers, the world's largest provider of executive suites, opened its first location.

In the past decade, the executive-suites industry has expanded tremendously, says Jane Booras, executive director of the Executive Suite Association, a trade organization in Plano, Texas. She says the occupancy rate for the 500 members of her organization is approximately 80 percent--up about 10 to 15 percentage points in five years. There are between 3,500 and 4,000 executive-suite companies in the U.S., Booras says.

Typically, a dozen companies now compete in booming markets in cities with strong commercial areas downtown--including Washington, New York, Chicago, and Atlanta.

Some of the companies are national chains such as HQ (which also has locations in 14 foreign countries); InterOffice Management Inc., based in Fairfax, Va.; and OMNI/OfficePlus, based in St. Louis.

Suburban locations are also popular. Booras says that 90 percent of business owners who lease office space from her organization's members live within five miles of the executive-suite building.

The boom in executive suites, Booras says, is largely a result of corporate downsizing, which has led many big companies to close expensive offices in some cities and instead hire regional representatives. But she says a steady 30 percent of the executive-suite market consists of entrepreneurs--mainly professionals, such as accountants, attorneys, financial and public-relations consultants, and people in real estate.

Executive suites can offer entrepreneurs numerous benefits. Rather than having to commit to a long-term commercial lease, hire employees, and buy or lease a full array of office equipment, small-business people can simply pay a single monthly fee for a furnished office in an attractive location, complete with business services and facilities as well as a receptionist who not only greets clients but also answers the phone in the company's name.

In some instances, the basic fee also includes travel-arrangement services, use of a fitness room and kitchen, and access to an on-site law library.

Executive-suite companies can provide as much or as little as a business needs. It might be simply bare-bones mail service-without office space--for about $50 a month. Or it could be a "business identity" package consisting of just mail and telephone-answering service. Another option is an unfurnished or furnished office available by the month, day, or even hour.

On the downside, small-business renters say executive-suite companies sometimes nickel-and-dime their tenants for extra services. Increasingly, tenants are providing their own personal computers and fax machines or hoofing it to a copy shop to avoid added costs--typically $2 for an outgoing fax, $20 an hour for word processing, $24 an hour for filing or other secretarial services, and 10 to 15 cents per photocopy.

Other extras might include a 20 percent handling fee for overnight mail service, $15 a month for voice mail, $20 a month for kitchen service, even a surcharge on outgoing phone calls.

On the other hand, some small-business tenants say they actually pay less for long-distance phone service, office supplies, and overnight mail service than they would on their own because of the discounts passed on by the executive-suite company, which can use its volume of business to negotiate lower prices with vendors.