Week of March 25, 2002
Snapshot from the Field
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Nokia Inks $142M Office-Outsourcing Pact with RegusBy JACK LYNE, Site Selection Executive Editor of Interactive Publishing
ESPOO, Finland and LONDON - Nokia (www.nokia.com) has inked a huge five-year deal with Regus (www.regus.com) for outsourced office space. The agreement calls for the 60,000-employee Finnish electronics group to transfer as much as one-fifth of its office space portfolio into Regus office centers.
That volume lends considerable financial heft to the pact. Officials from the two companies said that the total value of the agreement might run as high as US$142.5 million over its five-year duration.
Flexibility Counters ChurnNokia sees considerable bottom-line pluses flowing from the Regus deal.
"This agreement provides us with both improved operational flexibility and increased efficiency, which will result in a substantial cost saving to our business year on year," commented Nokia spokesperson Cherie Gary.
That flexibility, Gary added, will particularly boost Nokia's efforts in coping with its rapid real estate churn.
"Ours is such a dynamic business that we are constantly having to align our real estate portfolio to meet the needs of our internal and external customers, and this agreement helps to meet those needs very well indeed," she said.
The contract names Regus as the worldwide "exclusive provider of serviced office accommodation to Nokia." The global scope of Regus's operations seems to match up well with the real estate reach of Nokia, No. 12 on the Financial Times' Global 500. London-based Regus has more than 411 business centers with some 92,000 work spaces in 50 countries.
"We partnered with Regus because they are capable of providing a truly global one-stop-shop solution for our serviced offices," Gray said.
"This groundbreaking agreement clearly demonstrates that serviced office solutions are now becoming mainstream for the world's leading companies," said Regus Chief Executive Mark Dixon. "Regus is able to create a substantial reduction in the total occupancy costs for Nokia offices while also providing unrivalled global coverage.
"We now have a large portfolio of global clients that recognize the commonsense solutions that we provide," Dixon continued. "They also appreciate the significant flexibility and savings on total occupancy cost [that] we can offer them compared with a traditional long-term lease."
The agreement's scope "has a potential size of several thousand work spaces," according to a statement jointly released by Nokia and Regus.
In addition to space, Regus will provide Nokia with meeting rooms and support staff services.
Rough Sledding for
That double whammy has hit particularly hard at HQ Global Workplaces (www.hq.com). Earlier this month, the Dallas-based company filed a voluntary petition for Chapter 11 reorganization. HQ Global, which has more than 400 owned and franchised locations in 17 countries, suffered sharply reversed fortunes in 2001. In third-quarter 2001, for example, HQ Global posted an operating loss of $600,000, a major drop from the $34.9 million in operating income from a year earlier.
Regus, too, has been struggling through tough times, making its mega-deal with Nokia all the more important. The company's worldwide occupancy rate stood at 56 percent at 2001's end. And fourth-quarter revenue per workstation dropped to $2,388. By comparison, first-quarter 2001 revenue per workstation totaled $3,574.
Regus, which had doubled in size each year for a decade, has reined in its aggressive expansion. The company last year laid off almost a quarter of its work force and shrank total workstations by some 11 percent.
Top managers also extended the austerity mode to their own wallets. Dixon announced that he was waiving his $570,000 annual salary. Similarly, Finance Director Stephen Stamp said that he was foregoing his annual $228,000 stipend.
Regus also redefined itself as a business centered on high volume, not high margins. It initiated discounts for high-volume clients. It also reduced rates for "day pricing," as well as for business services such as administration and support.
A Rise for Regus StockThe Nokia deal seems to have boosted not only the company's finances, but its stock market standing as well. Regus stock rose by 16 percent on the news of its office-outsourcing pact with the world's No. 1 mobile phone maker.
"This trend in office outsourcing is increasing on a worldwide scale, as more and more companies examine their cost base and look for more cost-effective solutions to their office accommodation requirements," Dixon said with the signing of the Nokia agreement.
Similarly, today's difficult market has made cost-effective solutions a defining survival skill for serviced office providers. The sector's ranks will likely thin, just as have so many other industry segments in recent years.
The Nokia pact, most analysts feel, increases the likelihood that Regus will be among those still standing after the shakeout.
©2002 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.