Forty Years And Counting: Servcorp's Long-Serving CEO Alfred George Moufarrige
How Australia-born Lebanese Alfred George Moufarrige invented the concept of serviced offices.
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Alfred "Alf" Moufarrige, the Chief Executive Officer of Servcorp, an Australian Stock Exchange-listed property and technology services company, rarely speaks to journalists. He doesn't need to, he says. He also doesn't feel the urge to boost the company's growth trajectory. "Servcorp runs on cash, so we never borrow. We pay dividends. We never allow our bank balances to fall into debt," he says. "Would we like to continue to grow? Yes. Are we growing at the pace I would like? Yes. Do we need to accelerate that? No. I'm 76, and everyone is telling me I should expand faster. Why? My kids say all that, but we are a niche player in a market that has gone boom. So, if the market is 10 times the size it was, and I still hold a percentage of it, I'm pretty happy. So, I have this view that if we operate within our means, a lot more relaxed... Servcorp makes reasonable profit, and I still own most of it. I don't want to sell it. It's fun to run."
Moufarrige has the stately confidence of one who has spent a lifetime building his business. Although nearly 80, his strong-willed nature and restless energy, making him often unquotable, are hard not to notice. Before this interview, Moufarrige, who is reportedly a long-distance swimmer and extreme sportsman, had gone snowboarding in Japan, spent a few days in London and Paris, before making a quick stopover in Dubai and heading to Australia immediately after our conversation. ("It's not a disaster, it's all good!" he says.) We met at Servcorp's office at the Emirates Office Towers, a part of Dubai's iconic building complex, in which he was the very first tenant when it opened nearly two decades ago. It is one of the company's 155 locations in 55 cities around the world, of which 19 are in the Middle East. Despite being of Lebanese origin, it was only by chance that Australia-born Moufarrige was in transit in this part of the world, specifically in Dubai, from a flight on his way to Europe when he noticed the Emirates Towers building. Wanting to exploit the first-mover advantage, he opened the company's first Middle East office in Dubai, 14 years ago.
The success was instant since Servcorp's offering matched the country's can-do attitude and provided a solution for businesses struggling with high property prices. "I took this space here before the building hadbeen finished," Moufarrige says. "I just came through Dubai once. Emirates Airlines was just starting, it was an airline that nobody even knew. I just happened to catch Emirates because it was cheap. There were no expats here, but because my parents were Lebanese, I had a real interest in the Middle East, and I had real sympathy for it. So, I came here and thought that my father, who had passed away by then, would have loved this. My mother thought it was fantastic." "So, I signed and I fixed the rent for 10 years," Moufarrige continues. "However, when it started, we didn't think it was going to work. We asked the landlord to take the floor back, but they wouldn't, and so we had to pay the rent. I was losing money. Then the rents went up, the rents went nuts. So, the margin was up to 70%, whereas in a normal operation, like today, we make roughly about 15%. So, we made a boom at one stage. For us, it was a boom because this paid for the rest of the Middle East. So, had I just kept this, it would have been enough to retire, because of the red deal. Everybody got a bit hassled because I signed a red deal, where the rent was fixed, and the rents kept on going up. All the other guys were paying 50 times as much. The rent really was zero. In today's money, I don't know what it would be worth, but it would be a mind-boggling difference. The margins now are just normal margins, because after the first ten years, we got into the real world."
Servcorp was established in 1978 in Sydney as a serviced office business, allowing businessmen and branch offices of multinational companies to rent an office space without being exposed to risk and volatility by reducing overheads. More recently, it has branched out into the virtual office business, which provides communication and address services, but no dedicated office space, for a fee, to cater for the emergence of solitary millennial entrepreneurs. "If you want to expand your business in the digital age, what you need are IT solutions that work, and that actually explains the core rounding technologies and all the difference of Servcorp," Moufarrige explains. "That's the thing I actually believe in. Everyone is racing to the bottom on price, [whereas] we spend $1.3 million per month on our IT team. That's the difference. That's $1.3 million a month just for the wages to keep the whole thing running. We're building something where we don't just make an arbitrage, the difference between the rent that we charge and the rent that we pay. We've created an environment where our clients can communicate, buy from, and sell to each other. For me, it is a business that gives entrepreneurs a real opportunity to run their companies." Today, the company has thousands of virtual and office clients around the world.
It was in 1976 that Moufarrige required an office space, receptionist and secretarial support for his new venture, only to realize that these overheads were eating into his profits and that he was not able to keep this team occupied 100% of the time. Two years later, he used a piece of chalk to divide an office in the MLC Centre Sydney in order to share it with another entrepreneur. The space quickly grew to one-quarter of a floor with 16 offices, and, within 12 months, Servcorp had two floors in the same business center and a location in Melbourne CBD. "When I first started this business, if you wanted an office, you had to take half a floor, then you had to sign a lease between three and 10 years, and you had to lodge a six-month rental deposit, and then you had to hire a team," Moufarrige says. "You're in for a couple of million dollars." However, it wasn't smooth sailing. "To start with, a lot of people didn't want to share," he continues. "They had no idea what it took to run a business. So, if you think small, you'll stay small. The fact is that nobody understood the concept. At one stage, I sold half of the business for AUD50,000. I couldn't resist, it was really hard, because nobody knew the concept. So, we were not a niche provider then, but we are a niche provider now because we picked a place in the market that is way up market. We created the market in the middle of cities and in high-rise buildings, no one else had done it before."
The core of Servcorp's USP is in providing office space in prime locations within central business districts to businesses that understand the significance of having a presence at an iconic address, but prefer not to commit to a physical office lease. In this way, the company had disrupted traditional offices, although it took time to gain acceptance among the business community at large. Servcorp today is present in over 20 countries around the world, with a particularly strong presence in the Middle East and Asia. Today, three key drivers are fueling the growth of the serviced office sector globally, namely increasing numbers of growth businesses, expansion of key sectors that use serviced offices and the trend towards more flexible working. Only in the UK, which is the world's largest and most mature serviced office market accounting for 36% of the worldwide serviced office footprint, is the sector projected to increase in value significantly by 2025, to GBP62 billion on conservative projections and GBP126 billion on more optimistic forecasts, all according to Capital Economics. However, the sector has been disrupted by the co-working concept, a recent venture capital hit due to its success in attracting young entrepreneurs looking for shared working environments, with a youngish vibe, which enable a less formal interaction with others. One example is New York-based WeWork, a sharing economy startup that was valued at $16 billion last year. This year, co-working spaces are expected to increase globally by another 25% to 12,700 sites covering more than one million workers, according to Knight Frank. In response to rapidly growing co-working providers, Servcorp started trialing co-working spaces at four locations- Sydney, Tokyo, New York and London. "Coworking is only serviced offices in disguise," Moufarrige says. "The fact is that now when people go into co-working just because it looks cool, they're looking for a community to actually help them. But they [the co-working concepts] don't have a community, because they don't have a platform, although one of the major co-workers says: 'Well, if you want to build your business, turn around and say hi.' All of our members become members of our community -the Servcorp community, because there is a directory. So, if you want a lawyer in New York, you can get his extension."
As for the future of Servcorp, Moufarrige will continue keeping a tight rein on the company. In 2011, after 15 years of service, his elder son Taine Moufarrige decided to start up an LED lighting business, remaining a non-executive director at Servcorp. The younger son, Marcus Moufarrige, is considered the heir apparent. As of now, the Moufarriges control 54% of the business. Servcorp floated on the Australian Stock Exchange in 1999 with initial public offering of AUD2.4 per share. In June 2016, the company reported that it had increased post-tax profit by 20% year-on-year to $39.7 million, bringing total dividends for FY2016 to 22 cents per share. The company is expected to remain on the growth trajectory in 2017, according to the official statement released by the board of directors. At this point, it catches my eye that there are no women serving on Servcorp's board of directors. "None, but the board doesn't do much," Moufarrige responds, pointing out that Servcorp's highly experienced, long-serving management is composed of 900 women. "Now, that you can quote! So, yes, the fact is that I don't need women on the board, because all that the board does is watch over our corporate governance, but all my general managers are women. Our best general manager is in Japan. She runs 25 locations and her business is probably worth over $120 million. We don't have a guy general manager, just ladies across the world."
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