Regus value cut in half as British office occupancy levels plummet

Regus, the supplier of serviced offices, yesterday offered new evidence that the UK was beginning to follow the US into a sharp business downturn when it issued a dramatic profit warning which wiped out more than half its market value.

Regus shares plunged within within minutes of the announcement which said that the US slowdown had spread to the UK and Benelux countries, where Regus does more than 50 per cent of its business. It closed down 56 per cent to 71p, compared with last October's flotation price of 260p.

Stephen Stamp, finance director of Regus, said occupancy of the company's ready-made offices had dropped dramatically, falling from 75 per cent to 67 per cent in Britain during the course of the second quarter. "Our customers are finding it difficult to make decisions [about taking the office space] and when they do, they are finding it difficult to pay for it," he said.

Regus's offices in London have been particularly badly hit by the downturn, with a drop in occupancy from 90 per cent at the turn of the year to 67 per cent now. "We have seen financial services companies like investment banks cutting back. They used our offices to accommodate temporary over-spill staff and now their own buildings are sufficient," Mr Stamp said.

A high-profile potential casualty could be a concept Regus has created in Covent Garden in London. One of its blocks there has luminous green interior décor and was aimed at new economy companies. Mr Stamp said this "hadn't worked" and the idea was "under review".

Regus has now sharply scaled back its forecast for the current year. It said revenue growth would be about 30 per cent, which is only half the amount analysts had forecast.

At the pre-exceptional operating profit level, Regus expects to do no better than break even. And it will only achieve this, the company warned, "if there is no further significant deterioration in the economic environment".

The announcement was the latest piece of bad news to emerge from the company, which is led by the entrepreneur Mark Dixon and was heralded at the time of its flotation as the latest exciting new concept.

Since then, venture capital investors have exited earlier than expected from the stock and figures in May showed that the business was more cyclical than analysts had expected.

Investors last month lost more confidence when Regus decided to abandon talks with US rival HQ Global Workplaces because a steep fall in its share price made an all-paper transaction unworkable. Regus has also suffered in recent weeks from persistent short-selling of its stock by hedge funds.

Regus's warning is the latest in a series of bearish statements to come out of the business services sector. Michael Page, the recruitment firm, and Hays, the logistics business, have both issued profits warnings.

Marcia Sato, an analyst at BNP Paribas, said that yesterday's dramatic reaction to Regus's profit warning was justified, saying: "There was a big impact but this [warning] was not expected."

Regus said it was trying to counter the downturn by enticing customers to sign up by reducing its prices. This has reduced profits margins but the company hopes to offset the downside by improving terms with its suppliers. Regus has also laid off about 100 employees, with 50 of them coming from the UK, and scrapped plans to hire 1,500 new staff this year.