Brief but interesting interview with Paul Salnikow, the chairman and CEO of the Executive Centre, one of the leading flexible workspace providers in Asia. He talked about his career path, how the business has evolved due to changes in technology and also shared his views on the future of work and flexible working spaces. Some notes are below – these are paraphrased and for personal reference only, so any mistakes in transcription are my own.

His background – he is originally from New York; was coming through university in the late 1980s and Japan was the hot ticket out of Asia back then. He was looking to do something a bit different, so decided to attend university in Japan at Sophia University. That led to a job with a Japanese property company, where he was part of their international launch team. Work took him back to New York, then London and eventually HK in 1991. In early 1992, after a prolonged downturn in the Japanese economy, his company withdrew from all international markets. He decided to stay on and see what he could pull off as an entrepreneur.

The idea for the Executive Centre – goes back to his time in London. One of his early assignments was to find some short-term office accommodation for the Japanese company he was working for. In the early 1990s, however, London had a 25-year and upwards only lease structure, with upwards only rent reviews every 5 years. The only way to find shorter term space was to find someone breaking a lease and then would sublet the break lease. His experiences made him think why nobody was offering a hotel for companies. In fact, many companies at the time were often resident in hotels but, depending on the hotel, would eventually get found out and kicked out. He did nothing about the idea for several years until he reached a point where he had to make HK work or pack his bags and go back to New York. That’s when he wrote his business plan and shopped it around, was picked up by first round of investors in 1994 and that was the beginning of the Executive Centre.

The future of work and the impact of Covid-19 – he thinks Covid-19 has shown that a lot of business trips were absolutely unnecessary. From his own perspective, the first lesson he learned about his country-level teams is they don’t really require senior people like him to be flitting around making sure that the business is running. The Executive Centre is a strong, resilient and established business operating across 32 cities in 14 countries. The teams in each city are sustaining the business and while they do need to communicate regularly, there isn’t much handholding required. In terms of the future of work, he thinks a lot of the work-from-home initiative has been driven by cost savings rather than other considerations. Companies are realizing they don’t need as much space, people can hot desk, can reduce base leasing exposure etc. For most companies, HR costs are 1st and real estate is 2nd. Will be a gradual process over the next few years, but thinks the average corporate tenancy will be a smaller footprint.

On how the business has evolved – the first Executive Centre in HK had no raised floor, no server room and very large desks (either because the executive had a lot of paper or a large IBM PC and printer). The early client base was more small businesses, family offices, consultancies and headhunters. Average client size was 4-5 people maximum. Today they are dealing with 80% MNCs – the average client size is 25, and some clients number in the 100s. The iPhone also really transformed their business because it took people’s data and information and condensed it. Today, your entire office existence is in your phone and people have got rid of the PC, desktop printer, maybe replaced it with a laptop or tablet. Desks have shrunk, which means the density of space usage for clients has improved. The same 4 person office from 1994 is now perhaps a 5, 6 or 7 person office. The average desk size in 1999 was 2.3m, now it is 1.2-1.4m. In the old days, if you had 4 people in the office, everyone was in the office. Nowadays, even prior to Covid-19, if you had a 6 person office, the average attendance was about 66%, so 1/3 of their clients pre-Covid were not in the office but somewhere else (e.g. networking, travelling). Technology has been the most important driver of flexible office space. He feels like the market has come to him, he has been around for a long time but was very much on the fringe with a boutique/supporting product. Now his product is front and center.

How the Executive Centre has leveraged technology in their offering – they have always offered their members global access to their various locations. Their app allows them to manage capacity, shows the occupancy of the office space you are looking at. You can also pre-book and someone will put a “reserved” card on your desk ahead of your arrival. More recently, during Covid-19, they have also augmented the check in process so you scan a QR code and it uploads your vaccination / health status. Nothing revolutionary, but while it all sounds fairly normal now, even 5 years ago this would have been considered pretty stunning.

His thoughts on WeWork – as an industry insider, he never really understood the model. They would go out and lease huge amounts of space, became the largest tenant in London and Manhattan. Too much capacity, lot of hype, but in the background was losing a lot of money. They were paying the landlord but then not covering those expenses with sufficient revenue. The product was day usage. But the problem with casual usage is if you have a downturn, the casual users go home. Whereas companies that are governed by contractual obligations will do their best to honor them. As an example, their occupancy in Q1 of 2020 was 90%. By Aug 2020, they were at a low of 78%. Everyone who could leave or had to leave left. But 78% of the client base remained. A year later they are in the higher 80s and rising. WeWork’s occupancy mid-year was 53% and breakeven occupancy is probably close to 100%. Thinks they will eventually be a much smaller business. More importantly, MNCs require accommodation that is stable. MNC clients will ask them for financials to make sure their business is sustainable. Two tier 1 global financial firms recently took up space with them in Shanghai / HK, and in both instances asked them to give a guarantee they would not close the center during their occupancy. 

The future for the Executive Centre – today, they are the third largest flexible office provider in Asia by capacity and #1 by profitability. He would never have imagined they would be in a position where the product they are offering is now the #1 item that office occupiers reach for when they are looking for an office solution. People now want to understand their flexible solution first and then farm out their fixed / longer term requirements (e.g. perhaps an accounting or R&D team). For the service industry user, these people can be entirely flexible. Pre-Covid they were growing at 20% p.a., post-Covid will probably grow at a similar rate, look to expand into new markets.