NEWS

The key to success, and possibly survival, will be quality. Management agreements are becoming commonplace as landlords seek to fill space, but operators must resist expansion for its own sake, says Finch.

Orega is doing well because it has concentrated on customer service and ensuring that landlords invest in its property. "We refuse to enter into management agreements with anyone who is not prepared to turn their building into the best in town," he says.

This concentration on tenant care appears to be paying off for Avanta. Alberto says 46% of new occupiers are now signing up for at least a year. More than 25% of tenants in central London and towns such as Reading are staying for even longer. That has helped reduce churn, increase occupancy levels and stabilise prices in the last three months, he says.

But rents are still down on last year and some operators are making 'shockingly' low offers. "How can they make a reasonable margin?" he says, hinting at further trouble to come.

Some are more open about the dangers of a price war. "If we don't stop cutting margins, we will spiral into a black hole," said Brian Andrews, executive director of Basepoint.

He told the BCA meeting about 25% cuts in fees among rivals, which encouraged his tenants to make similar demands.

It will be hard for some to resist filling space at any cost when facing rent bills on leased space. MLS was reduced to offers as low as £1 per desk in its death throes.

The market outside London appears hardest hit. Andrews says demand "fell off a cliff" in March as struggling firms decided to cease operations at the end of the tax year. The biggest damage was among start-ups, where lettings fell 12%, but this was eased by a 4% growth in firms with more than 10 employees.

"Two years ago we were building walls to divide space," says Andrews. "Now we are knocking them down to accommodate downsizing major firms."

The picture is different in London, which still hosts the bulk of serviced offices, where Avanta and MWBEX have seen a surge in demand for space to handle half a dozen or more desks.

This is partly from professionals setting up new ventures after the wave of redundancies since the financial crash, but also because large firms are downsizing to cut property costs.

Competition is still fierce, however, and rents are down by as much as 15%, says Office Group managing director Olly Olsen. He adds that it will take "a hell of a long time" to get back to last year's levels.