Door opens for 'turn-key' offices

0 Comments | Oakland Tribune, Sep 23, 2003 | by Marc Albert, BUSINESS WRITER

AFTER OUTSOURCING manufacturing to Chinese factories and customer service to Indian call centers, there's one last step -- outsource the office.Well, now you can.

The concept isn't exactly new -- but it may be on the resurgence, according to some industry experts.

With firms expanding quickly and seemingly imploding even faster, entrepreneurs spotted a way to cash in. Provide "turn-key" offices -- space that comes with all the trappings of a Fortune 500 headquarters -- without needing a purchasing department or operations chief.

Laurent Dhollande, president of San Mateo-based Pacific Business Centers, said the concept can be very valuable to the right client. Formerly in charge of leasing for tech giant Sun Microsystems, Dhollande is very enthusiastic that his model works. Offices come with as many bells and whistles as clients want to pay for. Need a T- 1 line? Office chairs? Desks? How about someone to answer phones, or manage files? They're all available.

Branch offices and telecommuting are another market for executive office companies.

"As a single employee, I have the ability of having all the facilities of an office without having to hire the staff," said Jerry Sullivan, a risk management specialist for an invest-

ment company he did not wish to identify. A Napa resident, Sullivan said he shaved roughly two hours each way from his commute by leasing space in Pleasant Hill from Pacific Business Centers rather than driving to a branch office in Palo Alto.

"Central reception, mail services, dictation, copy, conference rooms, all of those facilities are necessary but not constantly needed, so this works out very well," he said.

Prices are naturally higher than in a traditional office lease. The average monthly price in San Mateo for a square foot of office space was $1.74 last quarter, according to broker BT Commercial. Pacific Business Centers, by contrast, charges from $6.50 per square foot down to $1.75. Smaller spaces are more expensive per square foot because the costs of the shared facilities are a larger proportion of the overall cost.

When office space was scarce and prices soared during the technology boom, a handful of players emerged and led the industry. Dallas-based HQ Global Workplaces and Britain's Regus expanded like wildfire, snapping up competitors and setting up office space in the world's hottest markets.

Then the wind shifted. Both filed for Chapter 11 bankruptcy protection after their clients -- mainly small startups -- vanished and the price of an office lease plummeted.

"The reason they were so popular in the 1998-2000 timeframe was because if you wanted space, the vacancy rates were so low it was difficult to find space with all the technology necessary," said David Aubuchon, an analyst at AG Edwards & Sons in St. Louis. "People were just starting up businesses every day."

The firms are now poised for a comeback. According to a printed statement from Nancie Sauer, an HQ Global spokesperson, the firm's reorganization plan was accepted by federal bankruptcy court a week ago. "We have moved the company in the right direction."

Regus is expected to have its reorganization plan approved within weeks.

HQ operates 16 office suite sites in the Bay Area. Regus has nine.

The smaller Pacific Business Centers, meanwhile, is growing.

"The long-term trends in demand for outsourced office space -- of course I'm very biased -- but I think it's huge, and that's why we're opening centers," Dhollande said.

In early August, Dhollande's firm signed a lease for 13,700 square feet of office space in San Mateo. That amount that wouldn't have raised an eyebrow three years ago. But with the commercial real estate market moribund and vacancies near 30 percent in the vicinity, even a small- to medium-sized transaction warranted a press release from broker Colliers International.

Dhollande's 10-year lease at the Atrium, a building at U.S. 101 and Highway 92, is a vote of confidence -- confidence that rents won't fall further. And at least one company banking that prosperity is just around the corner.

"There is a demand for very small space," Dhollande said, "even in a recession."

Marc Albert can be reached at (925) 416-4805 and malbert@angnewspapers.com .