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. Last Updated: 07/27/2016

Regus Plans to Double Its Russian Operations

British-based Regus PLC, the world's largest operator of fully serviced office space, says it intends to double the size of its operations in Moscow and St. Petersburg and has started looking for new properties to allow for further expansion.

Rob Kuijpers, the company's international CEO, said in an interview last week that Regus' Moscow center would expand onto more floors of the Smolensky Passazh business center to boost the number of work stations from 500 to 850, and it would install a conference center in the building by the end of the year.

"Over the next three years, we will most likely expand the number of places we manage in Moscow," he said. "In St. Petersburg, we might double our services this year, but after that we will focus our expansion in Moscow."

The Moscow center has occupancy rates of more than 90 percent, well above Regus' international average, he said. The St. Petersburg center, located on two floors of the Atrium office building and equipped with 89 workstations, has an occupancy rate of about 60 percent, he added.

He declined to give sales figures for the company's Russian operations, but said the global business had sales of ?421.1 million ($613 million) and 92 new centers had opened last year. Regus' more than 390 business centers in 50 countries come with a business services team, desks, chairs, telephones and computers connected to the Internet.

Regus' market capitalization fell three-quarters in just three trading sessions at the beginning of July, after the company announced its revenue growth would likely be less than the 50 percent it had earlier forecast. But Kuijpers played down the plunge.

"Markets are very jittery. The market fell quite a bit, and it will take some time to recover, but the company is still growing 40 percent a year. Normally speaking, people would buy Regus stock on the basis of growth and 40 percent growth is still quite good in anybody's book," he said.

Emma Leigh-Davies, Regus' marketing manager for Central and Eastern Europe and the Nordics, said Russian rates start at $24 per day per person for a workstation, with business services starting at $3.99 per person per day and meeting rooms rented at $7.99 per person per hour.

She said on top of the $5 million Regus had invested between arriving in August 1998 and the end of last year, it has made a "substantial" investment in Russia this year.

Leigh-Davies said the company's presence in Moscow has helped awareness of its brand name and growth of its business in central and eastern European markets. Regus also has office centers in Kiev, the Azeri capital Baku, the Latvian capital Riga and most central European capitals.

Kuijpers said more stability in Russia, including greater legal stability and tax stability, in the last two years had made it a more attractive market.

"There's more investment and more faith and that's probably why we're seeing now this awesome growth of our business with companies coming to Moscow to establish themselves here," he said.

"I don't think you could have a repeat of the 1998 crisis," he added.

Kuijpers said the average length of lease in Moscow is slightly more than a year, while the international average is seven months.

Although Regus had started out as a provider of temporary office space, more and more companies were deciding that office management was not one of their core activities and were using Regus or other companies to provide office services, he said.

"Almost month-by-month, we are seeing that and not just in Moscow but also in global markets."

He declined to name any of Regus' clients, but described them as leading companies.

The growth in Regus' business over the last six months was mostly due to Russian companies, he added.

"The Moscow market was originally [made up] of international companies starting up in the Russian Federation," he said. "We see now a number of Russian companies looking for quality space and the flexibility of using Regus.

"It puts them on more of an equal footing with some of their foreign competitors, and I think they realize that it's not that expensive if you really start counting and take all the costs you would have to run your own office.

"It's a relatively new phenomenon and that means that the market is maturing," he added.

Leigh-Davies said Russian clients now account for about half of Regus' business in Moscow and that their share was increasing.

Michael Lange, managing director of real estate firm Jones Lang LaSalle, said that Russian firms had slowly been taking up quality office space, but that this trend had accelerated in the last year. Jones Lang LaSalle estimated about 60 percent of Moscow's 330,000 square meters of top quality office space in 2000 was taken by Russian firms.

Whereas multinationals had been the main clients for such space in the early 1990s, now many Russian firms were renting large areas and the Mosenergo building had recently been rented out only to Russian clients, he said.

Amanda Spring, managing director of DTZ Zadelhoff Tie Leung, said in e-mail interview that the increase in Russian companies using Class A space was not new. After the 1998 financial crisis, rents had decreased and many firms were able to acquire Class A accommodation at the same rent that they had previously paid for Class B space, she said.

"In my opinion, it is also linked to the lack of good quality B Class office space," she said.

"For many companies, the flexibility offered by Regus can make a lot of sense and allows them to respond more quickly to changes in the economic environment," she added. "Clearly in an economy that has a history of being unpredictable, this is valuable."

Lange, who said Jones Lang LaSalle has a close working relationship with Regus throughout the world, said: "The [office rental] market is very costconscious right now and the flexibility offered by Regus offers many advantages."

He summed these up as low liabilities and maximum flexibility.