When Zach Douglas was a kid, he dreamt of being in a rock band. When he left school aged 18, he didn’t have great qualifications – he realised later in life that part of the problem was he was dyslexic – and got a job as a boat builder during the day, fulfilling his childhood dream of playing in bands in the evening.
Unlike many aspiring musicians, he achieved some success, becoming a guitarist in a touring rock band that supported the likes of The Stranglers and Big Country. But by his mid-20s, he realised he wasn’t going to be the next Jon Bon Jovi. He needed a career, so he went to night school to study business and marketing.
After receiving his higher national diploma, he got a job in sales and then worked at Regus selling flexible workspace at one of its centres, in Dartford.
Around the same time in the mid-1990s, Paul Finch started working for Regus in Belgium. Neither of them knew at the time that their paths would soon cross and that together they would go on to build one of the UK’s fastest growing flexible workspace operators.
Today, Orega operates 25 sites and circa 610,000 sq ft of office space up and down the UK and the two co-founders are hungry for more space, not just in the UK. In an exclusive interview with BE News, Douglas looks back on his journey from Regus to Orega and reveals where it is planning to expand next, and why.
Douglas has come a long way since he put down his guitar. In the mid-90s, the now chairman of Orega moved from selling Regus space in Dartford to the Thames Valley and then Canary Wharf.
“I really enjoyed working for the company,” he says. “They were the trailblazers and I know that if I hadn’t worked for the business when I did, I probably wouldn’t be doing what I’m doing now. That experience also gave me an insight into a fascinating industry.”
Douglas believes that the key differentiator in the flexible workspace market at that time was “supremacy” – or being the biggest rather than the best.
“I think that viewpoint was probably echoed when MWB [Business Exchange] came on the scene and sort of did a ‘me too’ Regus. There was nothing different. Perhaps it was a few pounds cheaper, but in my view, they weren’t really improving the customer experience or trying to change that in any way. So, I decided that I might want to have a go at doing this myself.”
He left Regus, started to pull a business plan together and starting speaking to people who he thought might back him. Then, through a mutual friend, he met Finch.
“He had a set of potential funders and investors and at that point, I had a property deal in place with a reverse premium if we signed a long lease,” says Douglas. “So, we decided we should probably have a full disclosure meeting. We showed each other our business plans and realised that when we put the two together, we had a far better business plan that made a lot more sense. So, we combined the business plans, we set sail and we eventually used his investors and my property deal.”
The duo opened their first building in Staines in May 2001. When they signed the lease on the 32,000 sq ft Ash House in December 2000, the Thames Valley had around six months of stock left and having done their due diligence on the competition locally, they estimated they could fill the building within six months of opening.
“However, by the time we opened, the world had already started softening to the point that we were unable to hit either our sales hurdle rates or our planned income per square foot,” recalls Douglas. “Within two or three months, we were started to go underwater because we didn’t have a very long rent free and we had taken a reverse premium. Then, of course, you fast forward to September 2001 and we all know what happened. The world was already changing and then it went into freefall.”
Late 2001 and early 2002 was “a dark period” for the business, but it also led to an epiphany that created the business model that has served Orega so well since.
“We thought that for someone operating flex space that signing leases was just mad because we don’t have a covenant and we don’t have a business that backs it other than the business in which we trade, which is the business of real estate,” says Douglas.
“We thought we can be as good as we can be, but we cannot turn back tides. That’s when we came up with our management agreement model and concept. So, we would work for and on behalf of the owners and operators of real estate to help them deliver a flex product in their real estate. They would be taking a real estate risk, which they fully understood, and we would be taking the operational risk without the rent, rates and service charge costs.”
So, Orega started offering management agreements to landlords. In 2003, the business opened its second centre, and then another one followed in 2004 and another in 2005. The buildings quickly became profitable, but they weren’t in prime locations.
“Our first management agreement building was in Chertsey, our second was in Slough and our third was in Wandsworth,” he says. “We started doing the problem buildings because the only conversation anyone would have with you about a management agreement was on something that was never going to fill in any other way.”
The breakthrough moment came in 2010 when Orega got the chance to pitch on a premium building for the first time. The building was Colmore Plaza in Birmingham, since renamed The Colmore Building, which had just been bought by Carlyle Group from developer Abstract.
“They bought it with an agreement to lease already in place and decided they could probably renegotiate it to a large law firm, but between buying the building and telling the law firm they wanted more rent, the market fell away and the law firm decided it didn’t want to lease that space anyway.
“So, the Carlyle Group was left with a 280,000 sq ft plus building with one tenant. I know they weren’t keen on the [management agreement] concept initially, but they realised that we would create movement, noise and PR and marketing around the building. Then they asked us if we would we look at another one in Manchester, which was in Piccadilly Place. So, we went and talked about that and we ended up signing a two-building deal with the Carlyle Group, which put us on the map and changed the quality of buildings we were able to get into because they were two effectively brand new Grade A buildings.”
In 2010, Orega signed its first deal on an office in London, at 16 High Holborn – it now operates six sites in the capital totalling 220,000 sq ft – and since then the business has continued to grow year on year.
“So, out of the fairly humble beginnings of a business concept, which was management agreements that no one wanted to talk about, through the 2008 global financial crisis we were able to open a fair few buildings and demonstrate that we could fill them in a way that people conventionally letting weren’t going to fill them.”
For Douglas, the key to Orega’s success has been the high level of service it offers its customers. This is why the business boasts such high retention rates, he says, noting the average stay is around four years.
“We want our customers not to feel like tenants but customers and be treated as such. We want to listen to their problem and solve it, and not just pay lip service whilst we bill them and remind them they are in a contract. That approach has given us a better relationship with our customers, which means that they stay a bit longer, which means our voids fell and we are able to make more money because we aren’t paying agent fees on new business coming in.
“We aren’t spending our whole lives trying to source fresh business and new business. We aren’t spending the money our big competitors are on generating new business. We’re busy grabbing the old business: loving it, keeping it and nurturing it and helping it grow with us.”
Thanks to the combination of management agreements and Orega’s customer-centric approach, the company fared better than many rivals during the pandemic. Douglas is proud that the company didn’t make anyone redundant during the pandemic and focused on keeping its buildings as full as possible.
“We had to keep doing deals, so we made sure that our salespeople were busy. We cut our cloth accordingly and we made sure that we could do what people needed us to do to stay open, stay operating, and we kept our landlords fully appraised. By and large, we’ve come out the other end of it with full landlord support and a bigger and more profitable business than we went into it with.”
As the business rapidly started to acquire more sites and grow post-pandemic, the co-founders decided to appoint Alan Pepper as CEO earlier this year to guide Orega through the next stage of its evolution.
“I have known Alan for nearly 20 years and have watched him grow and ultimately lead [flex office business] Avanta through a series of capital events and an ultimate sale. I then bumped into him again as he joined the board of Essensys, one of Orega’s technology partners, to restructure and AIM list the business. Alan has arguably some of the best executive leadership experience in the flex market.”
Douglas’s role has changed accordingly. “My role, as executive chairman, once Alan is fully up to speed with running the business, will be to focus on the future strategy and direction of the Orega business. We have many exciting plans ahead.”
One of those plans is the potential expansion into the US market. Douglas previously looked at the opportunity around 2017, but it was a time when flex operators like WeWork were taking a lot of space so he put the idea on the back burner.
However, he has had a number of “warm conversations” recently with US landlords about potentially rolling out the model Stateside. Douglas knows the idea isn’t without its challenges, but he sees a vast opportunity for growth in the US, as he does in the UK and indeed the rest of the world.
“A management agreement is about as popular in the US as it was in the UK back in the early 2000s,” says Douglas. “Landlords don’t like it, the banks don’t like it. They don’t understand it. But the reality is that flex is real, it’s here to stay and it’s growing. It’s mostly going to grow because people don’t want to sign long-term flexible leases anymore. It doesn’t suit business cycles.”
Throughout his career, Douglas has witnessed the space requirements of corporate occupiers change significantly, with many cutting their office footprints in the early 2000s and then again in the aftermath of the global financial crisis and more recently the pandemic.
Although office requirements could shrink again in the coming years, Douglas thinks this will only benefit flex operators. “Flex space will just become a bigger part [of the market]. In the not too distant future, we will see big tower buildings literally ebb and flow between conventional tenants perhaps at the top and a flex offering at the bottom,” he elaborates. “For landlords not to have it in their portfolio is simply not going to be feasible going forward.”
Given that this applies just as much to the US and the rest of the world as the UK, Douglas may soon be embarking on a rather different world tour to the one he envisaged when he was younger.
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