The flexible workspace sector dates back decades. It has sustained numerous recessions - including the devastating global crash of 2007-09, it's worth over £2.5billion in the UK alone, and it's continuing to grow and diversify on a global scale.
And yet, many would argue that the industry continues to be under-valued, largely due to investor concerns over the viability of a model that takes out long-term leases for short-term clients.
Is this a fair representation of an industry that has already proven its sustainability on the global stage? The answer, according to Peel Hunt's Equity Research Director, is no. Andrew Shepherd-Barron has tracked the serviced office industry closely for more than 20 years, and believes the sector is unfairly undervalued.
In the latest video interview from Landmark Plc's Richard Gill, Shepherd-Barron lays at least part of the blame on a comparison with the wrong sector, and discusses what can be done to improve its valuation fortunes:
In his interview, Shepherd-Barron explains that the flexible workspace industry should not be categorised as Real Estate, but as a Support Service. Although the support services industry is a "mixed bag" of many different business models, he believes serviced offices are much more closely aligned with that sector, and should be valued as such.
Taking the example of Regus as a listed company, Shepherd-Barron refers to the company's typical enterprise value of 8 or 8.5 times; yet support services average at 12 times. Serviced offices are therefore, he suggests, hugely undervalued. In addition, a combination of growing stocks and new openings are also having a dramatic impact on value.
However, seeking to re-classify the sector from Real Estate to Support Services is not an overnight process.
Despite the clear opportunities in the sector, investors still have to be persuaded that flexible workspace is an industry worth their attention. "Investors will always harken back to a business that's effectively taking on long term leases for short term clients," he explained, "which they see as being very vulnerable in a downturn. After all, Regus put its US business (HQ) into Chapter 11 bankruptcy in 2002/03."
As Richard Gill points out, the sector survived - and thrived - through at least two recessions since then. How long will it take before investors realise it is a sustainable business? Of course the answer remains to be seen, although Shepherd-Barron believes that its ability to uphold price even during difficult economic periods is "a real testament" to its sustainability.
Part Two of Landmark Plc's interview on serviced office valuation with Andrew Shepherd-Barron follows shortly.