Workspace Group Plc (WKP) Earnings Call Transcript & Summary

Well, hello, everyone, and welcome to our virtual Capital Markets Day presentation live from Edinburgh House in Vauxhall. By way of background of Edinburgh House, we acquired this building in 2015. And at the time, I guess, pretty best described really retired 1970's building, fully occupied by the police, which once we've retained vacant possession, we've transformed into what is now a stunning 70,000 square foot business center, ideally sort of configured for our small, medium-sized businesses. So it's a good example of what we have in terms of potential out of our refurbishment pipeline of extensive opportunities across our portfolio. And it's good to see that here, as in a number of our centers across London now, we are now seeing a significant return of customers to our buildings. You are all about to see an RNS this morning that actually, we have reported a 10% increase in customer utilization over the last month. So utilization now reaching just over 30% at the end of April. Anyway, moving on to the agenda for today. After my introduction, I'll be handing over to Will Abbott. Will Abbott is our Chief Customer Officer, and he'll be taking you through our brand presentation -- our brand positioning as well as our marketing capabilities. Will joined us in April last year, and just to give -- with a great opportunity to share with you his thoughts around our brand, our marketing capabilities and also the market potential for our business. And then I think what I'd like to do is then after that, we're going to have Dearbhla, our Head of Marketing, who's going to take you through the potential -- the launch of our advertising campaign, which will be coming shortly. And this is really going to be highlighting the attractiveness of our product for customers as they start to return to their offices in London. And then after the conclusion, we'll open up for questions. And at that time, I'll be joined by both Will and also Dave Benson, our CFO. But before I hand over to Will, if I could just cover a couple of points. Firstly, in terms of the corporate timeline and reporting through the first half of this year. Some of you recall that actually, we announced our Q3 results in January this year. That was just giving you an update on trading momentum. And you may recall that actually we highlighted that we're beginning to see an uptick in customer activity at that stage, albeit that we just moved into the third lockdown in this country. Alongside that, we also have set out a detailed pathway for our aim to become net zero carbon business by 2030. Following that, in March, we announced the completion of our first corporate bond, raising GBP 300 million. This was a green bond and with 3x oversubscribed. It was a great achievement by Dave and the finance team. And then earlier today, we announced an update on customer activity to the end of our financial year at the end of March. And again, we've highlighted actually the uptick in activity that we saw in January has continued through to the end of March. And indeed, now in through into April as well. And we're now running at pre-COVID levels of customer demand. And on the back of that as well as also seeing a reduced level of customer vacations, we've highlighted that we're now seeing occupancy levels stabilize across the portfolio. And indeed, if those trends continue, as we go forward, actually, we now hopefully start to see occupancy levels rise. So a really promising start to the new financial year. And lastly, just before I hand over to Dave, I'd just like -- to Will, sorry. I'd just like to highlight on the actual -- priorities I highlighted when I first took over as Chief Executive. This was from the November 2019 interim presentation. And it set out some of the operational priorities I saw were key for the business. They're really all about raising the bar in terms of being able to capture customer demand and then retain those customers. And there are relevant today as they were then. Unfortunately, since then, of course, we've had to deal with the challenges of COVID, which have taken center stage. But actually, they are still key priorities for the business. And as we go through the presentation today, you'll see that actually, we do touch on a number of these areas. But unfortunately, we don't have time today to give all of these areas justice. But rest assured, there's a lot of work going on in the background and as and when we complete projects on these various initiatives, we'll be coming back to you, give you details of the results, and hopefully, also showing you the results that actually what they mean in terms of actual customer efficacy, customer retention as well as new customer demand. So on that point, I'd like to hand over to Will to catch up on the brand proposition.

Thank you, Graham. Hello, everyone. As Graham mentioned, I joined Workspace a little over a year ago, and I've spent my career to date working in consumer marketing roles across a range of different sectors, most recently, financial services and travel. And what attracted me to property was, well, Workspace. What I could see when I looked into Workspace was a fantastic business with an incredible proposition, a unique model. And as I soon discovered, a really strong culture. But what struck me was that the brands seem to be punching below its weight. Given that Workspace has been pioneering flexible office space in London for over 30 years, it didn't feel to me as if the brand was as well-known and had the reputation that it necessarily deserved, it felt like a best kept secret. And I felt that if we could clearly and consistently articulate our proposition for our target audience and develop a positioning in the market that reflected all that was true, fantastic about the business, there was huge potential. But this isn't simply about marketing or advertising. It's critical when considering any brand strategy to consider the end-to-end customer experience. Now this is how I think about the journey that any customer, in any category in actual fact will go through, right from the start, the top of the funnel, the awareness stage, when consumers will become aware of a brand, in a market and understand the differences between that brand and others in its category. And this is often achieved through marketing, through PR, sponsorship, public media and actually, brand reputation and word of mouth. Through then to the consideration phase, being aware of a brand is one thing, but understanding what it offers and how appealing and appropriate that is to you, as a consumer, is something different. So that when a consumer who comes into a market, is ready to buy, they actively consider your brand. That's the challenge. Then on to conversion, translating that consideration, that intend to buy into an actual sale, a customer. And this, of course, now increasingly and predominantly, in many categories is done online. Then, of course, loyalty, delivering the quality of service and experience for customers that promotes retention and encourages them to stay. And to do so at such an extent -- to such an extent that they become advocates of your brand, actively recommending you in the market. So that others become aware of you and in doing so, refilling the funnel all over again. So this is something that we've considered in thinking through our brand positioning strategy, and I'll return to this shortly. But firstly, I'd like to start, importantly, with target customers. Now you'll have seen this breakdown before. We have a diverse customer base, and our target customers come from a range of different segments. Small to medium-sized businesses, from technology, consultancy, a host. And what we've seen, particularly, in the last year is a growing number of creative businesses coming to us. And whilst we already have a strong foothold in this market, we still have significant headroom to grow further. Again, you'll have seen these numbers before, but we estimate there are approximately 100,000 target businesses within London, that fall into the category I've just described or categories. Now we have around 3,000 customers. Of course, each of those customers, those businesses has employees themselves. So there's far more than this in our business centers, but taking these numbers as a guide, you can see we have a 3% market share. So clearly, considerable opportunity to increase this further. And what's more, demand is set to grow. You only have to read the headlines or listen to the commentary in the market, and it is very clear that the flight to flexibility is gaining momentum, and it's gaining momentum fast. But for business owners, considering their office needs and navigating through the different choices available in the market, the increasing number of choices. It's not always obvious who provides what and what the different options are for you. And the reason for this is everything is very similar. It's hard to spot the difference between different offers, different providers across different categories. This example, just taken from some websites, illustrates the fact it all kind of looks the same. What's more, the messaging, again, taken from a sample of website is very similar, hits list of product features and you'll notice the use of the word flexible or flexibility has become so overused, I would argue, it's almost rendered it meaningless. So all very descriptive, but nothing very distinctive. And this is despite the fact there are clearly different offers in the market. But the lines between them and the offers available are blurred, which makes it very difficult for target customers in our audience to necessarily understand how different providers and different options stack up and many simply won't know enough about workspace yet. To address this, we need to build the awareness in the market of our distinct offer, and this starts right at the top of that customer funnel that I talked about a moment ago. We need to articulate our proposition more clearly. And position Workspace in a way that is authentic to our brand, our values and our culture. We have to be true to ourselves, differentiating versus competitors, as I've illustrated, and compelling to customers. So to do this, first and foremost, we need to understand what is important to our target customers, not simply the features that they can choose, but the benefits they deliver that will be most compelling to them. So we conducted in-depth research last year to create customer personas and try and answer these questions. And these personas are typical of our target customers, some of London's brightest businesses, forward-thinking, ambitious, small to medium-sized business owners. These personas have helped us better understand what is important to them, what will be compelling. And when it comes to them, considering their office space and their needs for the future. So firstly, let me introduce Sofia. Sofia is a considered and senior entrepreneur working in the creative sector. She's experienced and her team regularly meet clients, often host them at their office. She knows what she needs, and she wants the ability to change it. Her business and brand, personal brand, linked to that, are incredibly important to her and have been a key part of her success today, helping raise her profile and build her reputation amongst clients and peers alike. For Sofia, it's about my brand, my space, my rules. She needs control, the ability to change things that she needs to and feel in charge, but she needs a building, wise clients, a creative environment for herself, her team and those people who visit them. On the flip side, we have John. So John, he started out more recently than Sofia. And he feels like he's got too many plates spinning. As a result, John needs more guidance and more support perhaps than the more experienced Sofia does. But a permanent base for his office -- sorry, for his team, it's still really, really important. This is where the team come together to collaborate, and it's where they're establishing their own company culture. So for John, it's about my space, but make it easy for me. He wants a place with the whole team enjoy working, and it feels like theirs and is right for them. So the 2 dimensions that come through clearly from this work that we did last year. And these 2 customer personas are control and identity. These are the key customer needs, I believe, underlie the very concept of flexibility. And of course, these are at the heart of the Workspace offer. Our model gives customers that control for the flexibility of our agreements as well as the ability to stamp their own identity on their space and choose from 1 of 60 iconic buildings and locations around London. Whatever is the right design, space and place for them. And by focusing on these key benefits, we can more clearly set Workspace apart from others in the market. Because on the one hand, whilst the business owner can personalize their space with a conventional landlord, they are typically constrained by the fixed long-term lease that comes with that. And on the other hand, in a serviced office, your ability to brand and adapt and stamp your own identity on your space is compromised. It's more of a hotel than a home for your business. Whereas Workspace is different. We sit apart in a category of one, if you like. And we have been pioneering flexible space in London for over 30 years, effectively providing flexible homes for businesses for many years. And we can take more ownership of this category, clearly position Workspace as distinctive, free from the constraint and compromise, typified by others in the market. So distinctive, compelling, but as I mentioned, it's essential we are also authentic building on the foundations of our brand, our culture and our purpose, our raison d'être. And our purpose is to give businesses the freedom to grow. This has always been at the heart of our flexible offer, our flexible proposition. It guides our strategy, our customer service and are doing the right thing commitments. And it's underpinned by the belief that in the right space, teams can achieve more, in an environment tailored to the specific needs of the business and as part of the collaborative community that fosters the right culture, that business and that team have the opportunity to fulfill their potential and to shine. Now I think this is something intuitively we could all recognize to be inherently true. Now articulating our proposition, what we offer. How to pull it together simply and clearly, but recognizing the emotive power of the right space for the right team. The build from our purpose and draws from the insight I've just touched them, allowing us internally to make sure we're centered on what really matters for customers and consistently deliver it. So how do we articulate our offer, liberating spaces, for businesses to shine. This is what we offer in a nutshell. Inspiring spaces in iconic places, free from constraints, free from compromise, where teams can collaborate, build their culture, and realize their potential together. And there are 3 critical components to how we deliver this. Firstly, it's our buildings. The choice of 1 of 60 fantastic buildings across London of all designs and styles, whatever works best for each customer, each business and their brand. Secondly, critically, too, our customers, the community of like-minded businesses that give each of our buildings, its own personality. And of course, our people, who provide the service within those buildings for our customers. And it's the combination of these things, I believe, that pulls -- the combination of these things, the buildings and the people within them that help define our brand positioning, how we pull everything together in a way that allows us to guide what we do internally with our teams, with customers and the service we provide and how we use it externally in our marketing and communications. And that positioning is, home to London's brightest businesses. A simple but bold assertion of what we aspire to be and for whom. Let me expand on this a little further. I read this to you. It's a manifesto, if you like. Work, home, business, pleasure. If you run a business, you know that those lines have always been blurred. So your office should be a place to enjoy, to think, to debate, to create together a place to shine. Workspace is unique. We own a collection of iconic buildings across London as individuals as you are that work as flexibly as you need, that your team will love, your friends will envy and your clients will admire because where you go to work makes all the difference to where your business goes, Workspace, home to London's brightest businesses. So I hope that captures the essence of it for you. Our brand positioning that we will develop over time through that customer experience, that funnel that I shared and to all our existing and future marketing. And we've already started doing this. So over the last year, I've been enhancing our existing marketing with the team. And we're building from a really solid base. We already have an experienced team in place who, for many years, have been working on a range of marketing activities, largely focused in the middle part of that funnel, the consideration and conversion stages. We have an established inquiries engine, a dedicated in-house team harvesting inquiries from the demand in the market. And taking these typical figures, as an example, you can see the scale of the existing capability. Over 8 million people reached across social channels every year. We appear nearly 2/3 of the time in relevant searches on Google. And Google, obviously, is a hugely important channel for us and everyone in the market. Over 80% of web inquiries come through search in the first instance. So our expertise in this area is incredibly important. We have over 1.5 million web visits per year. And all of this combines to deliver an average of around 1,000 inquiries per month, as Graham touched on earlier. We're already seeing this level returning. So in preparation for the return to work, and the momentum that is already building behind us, we've been working across the teams to enhance these areas even further. So firstly, let's take a quick look at social media and content marketing. Now we've overhauled this in recent months. Now we use a range of different channels. So we use Linkedin, as I'm sure everyone would expect us to, but we also use Facebook, Twitter, Instagram, YouTube, a whole range of channels these are updated on a daily basis to build engagement with target customers and our existing customers. We feature our buildings, showcase customers. As you can see, some of recent examples here and run ongoing activity where we also bring our center teams into the messaging and give them a chance to speak directly to customers and target customers. We have even launched our own Spotify channel where we invite customers and team members alike to create their own playlists. These are then available to the public. We promote them via social, and we play them in our building. So I would urge you to check them out, although I can't bout for everyone's taste in music. We've also been honing our direct marketing, our digital advertising to drive inquiries at an even greater rate. So we're ready and prepped as demand is coming back. Our search marketing is now more sophisticated than it's ever been. As I mentioned, it's an increasing part of where -- it's an increasingly important channel for where inquiries and leads in the first instance come in. And it's broken down into 2 areas. So there's the paid listing that I'm sure everyone is familiar with, but there are also the organic or free listings that sit below them. And how Google determines a company's listing position in the free or organic ranking is dependent on a number of factors, including speed of site, mobile usability, structure of site, content, and they change this regularly in their algorithm. So keeping on top of this really is a full time job. And luckily, we have a full-time team on it. From a pay perspective, we're dynamically bidding on the best converting search terms on a daily basis. And we use insight into our customers to precision target our advertising messaging, testing and optimizing every week, in fact, every day. Additionally, we're increasingly using video to engage with our target audiences and using hyper local targeting, zeroing in on searches right at a local even neighborhood level to deliver the best possible results and point them to the best business center in their location for them. And on to our website. So this is our shop window online. It's incredibly important. We launched a new website that hopefully, you'll all have seen, end of last year. And I'm pleased to say the new site is performing very well. We designed it as a mobile-first website, recognizing the fact that over half of our web traffic now comes from mobile devices. And by improving the content, the structure and the speed of the site, all things, as I touched on earlier, that are important to Google, we have significantly improved our organic search rankings. Additionally, by adding new location pages and improving our content across the site, we're seeing a significant uplift in the activity and an increase in those people visiting those pages who go on to make inquiries. And in fact, overall, we're seeing a 21% improvement of web hits through inquiries. So a very positive result so far after only a few months, and we have an ongoing program of developments in the pipeline to continue to improve user experience and optimize the overall performance of the website. And then lastly, I'd just like to touch on brokers. So online brokers are growing an important channel and a first port of call for many businesses when they're looking in the first instance for space. We work with them to help increase our visibility across the market. It's a very good complement to what we do from a direct marketing point of view. And we now work with around 50 partner brokers. They provide good quality leads because, of course, they prequalify those customers coming to them before they pass them on to us. And we do pay commission, of course, but we only pay it on the first year of rent and clearly, only a fat inquiry. Eventually becomes a customer. So by working in partnership with them and embracing them, we are able to control it and manage it and build a long-standing relationship that allows for a steady flow of ongoing business. So hopefully, as you can see, we've made very good progress over the last year despite the incredibly challenging times that we've all experienced. We've enhanced our marketing capability and we've now developed a clear positioning strategy, putting us in a strong position and the Workspace brand in a strong position as we look ahead. The next step is to bring this to life and begin building awareness in the market amongst London's brightest businesses of our brand and offer. So I'd now like to hand you over to Dearbhla, Head of Marketing in my team. To take you through the plans coming up and give you a preview of our forthcoming campaign.

Thank you. Hello, everyone, and lovely to meet you. So I'm Dearbhla Mac Fadden, and I joined Workspace last year as Head of Marketing. With over 15 years, customer marketing experience across a range of consumer brands, including travel, retail and design. And today, I will bring you through our new brand advertising campaign. The key objective with the campaign following Will's overview just now, is to reflect our brand positioning, home to London's brightest businesses and our brand proposition. And to do so in a distinctive, compelling and authentic way. The campaign is very much of its moment. Everyone right now is considering going back to the office and their future office needs. And with this campaign, we are ensuring they are considering Workspace, so Workspace are front of mind. The campaign is aligned with lockdown easing and the lifting of the restrictions to capitalize on the [indiscernible]. The key conversation on everyone's lips right now is how and when and where they are returning to work. And I'm sure all of you are having similar conversations with friends and family and colleagues over the past few weeks. And we are hearing the same from our own Workspace customers. So we want to hijack this back to our conversation and show that working from work is better with Workspace. And of course, we have created a campaign to stand out, grab attention and be recognizable. As Will showed earlier, everyone is very generic and same in the industry. So we are injecting energy and personality into the category. With the media strategy for the campaign, we are taking a highly targeted multichannel approach. Our target audience is London SMEs and their teams. And this ensures we capture their attention at different points in their decision-making journey. So where they watch, listen and consume various media. We are also blindly covering London. So what you're seeing here in the map are the bus routes we have taken from Zone 1 to Zone 6 all across the city. London buses work very well as they cover the breadth and depth of the city, targeting our audience, whilst they're in town, on their commute and also back home in their own local areas. We are taking roadside adverts, again, which are highly targeted and impactful in local neighborhoods and near our Workspace properties. And we will also be live across digital audio, radio and podcasts. And what's great about digital audio is you can follow your target audience to specifically target business owners, entrepreneurs and founders for radio FM. And both radio and podcast listing has significantly increased during lockdown. We are always on across digital, as Will previously mentioned, but we will be awaiting brand placements and social media and display advertising. Along with print inserts in national media. So we all know about the ubiquitous working from home, WFH. We've all been using this acronym over the past year. And the idea with this campaign is to turn working from home, WFH on its edge. Because now, instead, everyone is talking about returning to the office. The conversation we are all having is, are you back at work yet? Have you been back in work yet? And when and where do you think you're going back to work. So with this campaign, we are hijacking this conversation without taking part in all this. The work from work conversation, WFW. And demonstrating that working from work is better with Workspace. And WFW is, of course, work from work and work from Workspace. And we now show you the creative in situ. These are our bus adverts, highly visible and London red buses are so iconic to the capital. Everyone associates them with London. And as the London brand ourselves with over 30 years' history and heritage in the city, they align really well. Don't go back to work, go back to Workspace #WFW, always with our hashtag and with our Workspace logo. And this is a second execution we're running. Work from home, work from home, work from home, work from home, #workfromwork, which is very clever, playing to the endless, work from home lockdown days certainly unlocking to work from work once again. And here are some of our roadside odd products, which you can see are extremely impactful. They will be in key locations across London, and you can see here, you definitely cannot miss them. This one, for example, is right on Camden Road on the main road linking North London straight into Eastern. And you can see with our headlines, they're all personalized to their local areas, too, for maximum effectiveness. Camden, don't go back to work, go back to Workspace, #WFW. And Hackney, don't go back to work, go back to Workspace. You can see we've put our customers front and center to our campaign, which is very important to us to put them right at the heart of this. These are our customers, Freddie's Flowers here who are working from Workspace and [indiscernible] our other customers in our portfolio who are also working from Workspace. Shoreditch don't go back to work, go back to Workspace, WFW. And you can listen out for our Workspace adverts across digital radio, and we will have workspace adverts on podcast over the coming months. So listen out for us on the likes of Capital Radio, Virgin Radio, Classic FM, Jazz FM, talkSPORT, Wondery, SoundCloud and TED Talks to name just a few. And we'll be running digital adverts online. And social media content across all of our channels, Twitter, Instagram, Facebook, Linkedin, YouTube and we transfer, which will inject some wit and humor into the category and be very memorable. Work from home and your neighbor is Paul, #workfromwork and your neighbor in St. Pauls. Meetings with the view, when you work from home or meetings with a view when you work from Workspace. And a personalized home office, working from home or a personalized work office plan you work from work. These are quite fun and very bold and they will definitely [ Sundays ]. We will also have print newspaper adverts on iPad versions in Sunday National Media for SMEs and a more weekend mindset. Work from home or work form work, we can make it work. Don't get locked in after lockdown. And finally, for our customers to engage them in the campaign, we'll be running competitions and promotions to encourage them to share photos of themselves back working from workspace using the hashtag. And all of our cafés will be getting involved with work from work stickers, and branding on coffee cups and takeaways. So the campaign goes live on Monday, and we really look forward to you seeing it. Thank you. And I'll now hand back over to Graham.

Okay. Well, thank you, Dearbhla, and thank you, also, Will. I hope you found that interesting and also hopefully useful. I appreciate that it's not the normal content of a Capital Markets Day for a property company. But to some extent, that's a point. Workplace is not a typical property company. And indeed, we've talked in the past about the importance of our operating platform. And what we've covered here today is absolutely a key element of what is our operating platform. So lastly, in terms of, hopefully, what you've taken away from today's presentation. I think a clear market for me, a clear identify for me is that actually customer needs are changing. Businesses are becoming a lot more thoughtful about the space they need. And indeed, when they think about the space they need, they're thinking a lot more about what is right for their staff. A real sea change in the marketplace. And in terms of capturing that demand, messaging and product differentiation is crucially important. We've highlighted that terms such as flexible are being so overused and are almost becoming meaningless. And actually, that's creating a huge amount of confusion in the business -- in the business well of office space. So we do need to have a very clear message of what we offer. And then I think if you have that, today, hopefully, you've also picked up is the strength and the depth of our marketing expertise, which is hugely important in this dynamic market. And looking forward, I think the opportunity for us is significant. We're already in a good place, but I think with our brand and marketing plans, there's huge opportunity for us to stamp that clear leadership of this attractive and growing marketplace. Okay. On that point, then, what I'd just now -- is we're moving now to questions, can I just mention, of course, that because we're in a close period with our results being announced on the 3rd of June, is we will, unfortunately, not be able to focus on any updates on trading performance. And so if I could ask if the question really focused around the presentation today. Thank you, and we'll now hand over for any questions you may have.

[Operator Instructions] Your first telephone question today is from the line of Max Nimmo with Kempen.

Thanks very much for the presentation, everyone. Just keeping the questions based on the presentation today. Can you give us an indication of what percentage of commission do you actually pay to those office agents in that first year of the lease? And secondly, maybe a bit more of a high-level question. Just kind of looking forward, how do you address the cyclicality of this business? Because although, we may not be going into a long downturn with COVID. And with vacancy back relatively quickly. What can you guys do to stop tenants kind of walking out the door when we do get these cyclical downturns and vacancy does get at sort of 18%, 20%.

Okay. I suggest. First question is a combination of Dave and to Will. Can I hand over to you about the brokers, and then I'll pick up the second piece perhaps, cyclicality.

Sure. Yes. I can go for it. Okay, I'm happy to. So as you say, it's only for the first year of rent. And it's between 10 -- around 10% to 20%, but largely down to sort of 10% to 15% mark. And we then work closely with the brokers, obviously, and different business centers, depending on the priority for us we'll pitch at the different level.

And Dave, in terms of total cost?

Total cost for brokers is, I mean, in a normal year, if there is such a thing, it's probably around about GBP 900,000. Obviously, the last year, FY '21, it's been lower because of the lower volume of activity. But going forward, we'd expect that to revert back to more normal levels and possibly tick up as we go forward.

And it represents around 20% of our lettings activity is through brokers.

Yes.

I guess the second question you had around cyclicality. I suppose part of my pushback on that is, I mean, I think we -- I'm not sure about 20%. We saw about a 10% drop in our occupancy rate through the last year. I mean, I would say, if ever there was a test about the robustness of our business model, London being closed for you is a pretty good test. So the fact that we only lost around about 10%, just over 10% of our customer base. I think it's a pretty good resilience factor for us. Equally, the fact that actually also, we collected a very high level in terms of percentage terms of the rents as well. So the customers stayed with us and they paid their rents, which goes back to, I guess, the fundamentals of our business, which, again, I think Will highlighted earlier, which is it's very much a home to our customers. It's a long-term home. Typically, customers stay with us between 5 and 10 years. And so I guess, what underpins, for me, the resilience of this business is actually about being able to maintain and for me actually improve the high levels of customer service that we provide. Yes, you've got to make sure the buildings are fit for purpose, but it's everything we wrap around that in terms of the customer service. And there's everything from the technology we use, through to actually the quality of the people and the services they provide day-to-day to our customers. But actually, as a model, I think, 30 years now, we've been through various challenges in terms of recessions, I do think actually, we are fundamentally a very resilient business. Sure, I think the last year has been a real test. But I think from my perspective, I'm proud of the way that we've come through that. Hugely challenging, but actually, we've come out of it in good shape and well positioned to actually now take advantage of the opportunities we see ahead.

The next question comes from the line of Paul May with Barclays.

I hope you can hear me. Just a quick one. You mentioned in the presentation, so it's arguably linked to the presentation that occupancy levels have stabilized, and you're starting to see potential some growth from that. Can you let us know what level they've stabilized at? Because obviously, quite an important piece of the jigsaw. And as I say, you mentioned in the presentation, so it's arguably linked.

Yes. I mean -- it's Graham here. I mean, at this stage, I don't want to sort of print what we're going to be planting at the year-end. But safe to say that we gave an indication in January around the stabilization. I mean, it was just over 8% to 2% then. So I think now -- I think you should just work on the basis that it's stabilizing it, obviously, slightly below that. But I can't really -- I don't really want to take you through anything more detail than that at this stage, I'm afraid.

Okay. And I presume you can't give any indication on rental change in the last quarter?

No. Again, I think we'll say that, unfortunately, Paul, for the 3rd of June.

Okay. We've got a question from the -- couple of questions from the web now. So from Miranda at Panmure, can we give an indication of the cost of the campaign in terms of both upfront cost and ongoing costs?

Sure. Well, I think that's a question for Dave.

Sure. I mean, yes, I mean the media cost of the campaign, as you said, and that's across the buses, the race size signs and across all the media channels. It's around about GBP 350,000. So that's the one-off cost of the campaign. I mean there is no sort of ongoing cost committed, if you like. What we will be doing though, obviously, is assessing the effectiveness of the campaign, the impact that it's having. And then we'll review and see what -- to what extent we want to repeat or do similar activities going forward. So the one-off cost is about GBP 350,000.

Dave, do you want to highlight what the overall marketing cost is?

Yes. Again, in a typical year, it's probably around about GBP 1.5 million marketing spend the majority of that actually is around -- I mean, we talked about Google. It's around search, paid search, search engine optimization, et cetera. And then there's a whole bunch of sort of content creation, if you like, across the various different channels. So that's in a normal year. I think with the cost of the campaign this year, it will probably be slightly higher than that. So probably more like GBP 2 million this year, something like that.

Great. Another question from the web from Denise at Stifel. Are there any differences in the sorts of prospective customers we're seeing compared to pre-pandemic?

Yes. I mean, I'll pick that one up. I mean, I think it's early days. At the moment, I'd say that we're still seeing probably the typical sort of customers in terms of the range of sectors. We are seeing some large occupiers beginning to indicate they may be interested in space with us, who might have make a more traditional lease historically. And I would expect that to become more common. In terms of sectors, I think the broad range of sectors is already least effected London PLCs. So I'm not expecting that to change, albeit that at the moment, we're not seeing demand from those sectors that have been very severely damaged by the pandemic. So I'm thinking here of sectors like travel and events. Again, I expect those to come back in due course. But I do expect, actually, the market for our type of product to broaden. But having said that, we still -- we've got an existing huge opportunity. So I think it's good, but I don't think that's going to be -- this is a game changer for us, but I do think actually, it's all a positive direction to travel for our type of product.

Okay. A question from Sebastian at Peel Hunt. Looking at third-party data for web visits on the website, it looks like there was a big increase in web traffic from February to March, consistent with the inquiries we've reported. But it then dipped in April, has that fed through to inquiries?

Will, take that.

So as we've said, we are seeing momentum coming into April at a similar level to March. But what we are seeing, and I think this is testament to the work the team are doing around the digital marketing is whilst we're seeing traffic at a similar level of -- traffic will always come up and down, especially when it's impacted by things like Easter and holidays, what we are seeing is a better quality of visits are coming through. And really, that's what's most important for us. So all the work we're doing on the website to help us get -- and with our digital marketing to help bring the best possible people through and then convert them at the best rate is really the focus for us. So we are seeing a similar level coming through, some of those metrics around the edges will, of course, vary from month-to-month and always do.

Thank you. So a couple of questions on the campaign. Firstly, is it a permanent campaign? And then secondly, do we have any discrete KPIs that we monitor to determine success of marketing campaigns, both in terms of normal course of marketing and then for the WFW campaign?

Okay. Well, I'm going to hand this over to Will, but with the caveat that obviously will be surrounded by 2 accountants, 1 either side. So you can rest assure that everything we spend is going to be tested in terms of return. But Will, over to you.

Thank you. So first question. So no, it's not a permanent campaign. I think the working from home to working from work transition is a unique moment in time. So we've deliberately created a campaign that reflects that. And I hope we'll capture attention and the imagination and feel very relevant for that reason. What we will be building on overtime is that positioning that I went through, the home to London's brightest businesses, and that's going to take us months and years, really, I think, to continue to build and develop and pull-through all our different channels, both internally with customers and in our marketing and communication. So I think the look and feel that you've seen today will be consistent. But at the appropriate point, when people have then settled into the new working from work, whatever that MO is for their business, and the conversation has subsided, then we'll move on to a new way of capturing attention and bringing customers into the Workspace world. On the second question, yes, I mean, we track a host of internal metrics on an ongoing basis. And specifically, with this campaign, one of the things we're putting in place is brand tracking. So we are going out into the market, surveying business owners in London and using that as a basis to understand relative to others in the market, other brands, where our awareness is, where our consideration level is, how we're seeing and understood in the market by our target audience, and then we will track that overtime. So that's -- we're putting that in place now, and we'll continue to track that in the future.

Okay. Great. So a couple of questions on customers. Firstly, looking at the Venn diagram, as we seek to expand the universe of customers, is it likely to move our business more to the left of the pie chart -- to the left of the diagram, sorry. And then secondly, are we looking at targeting larger businesses?

I mean, I'm not sure what I mean what was meant by the left of that diagram. I mean, my answer is, actually, I don't expect there overtime to be a significant shift in the mix of our businesses. At the moment, we are seeing very strong demand, for example, from e-commerce businesses, particularly in areas such as fashion and film and TV production. That is a sign of the times. I think we will see ebb and flow of certain sectors. And I mentioned others are obviously more challenged at the moment. But overall, I mean it will chime very much with the mix of those service-based businesses in London plc more broadly. So I don't think I can see anything major in terms of reasons why that sector split will change significantly. And in terms of attracting larger customers, I'd be delighted to actually broaden the capture of customers from a larger range of customers, both large and small, I think the only caveat I would have about that is that we're always very mindful that we wouldn't want one customer to be dominating a building. I mean, the whole essence of our model is one around collaboration and the community and the vibrancy that you find in our centers. And we do find that there comes to a point potentially where one customer maybe dominating in a building and maybe starts to conflict with some of those aims. But generally, though, I mean, we've got a lot of space. We've got a lot of large buildings. So I mean, that's really the very extreme end. So the answer to your question is probably yes, that actually, if and when there are larger customers that want to be part of our type of space, with that sort of vibrancy, that undoubtedly, will be very attractive to their staff, then we'll be very welcoming to them.

Thank you. So a couple of questions about supply in the market. Firstly, as companies revisit their office requirements, is there or will there be an oversupply of office space? Separate question, has supply reduced over the last year through COVID? And is there any way to quantify that?

Okay. I'll have a go at this one, but I might refer to my team colleagues as well. I think my perspective is much like as we came out of the financial crisis is, there is quite a lot of gray space out there. A lot of customers are looking -- larger corporates looking to sub that space. But that rather flies in the face of what I've been talking about in terms of the sorts of thought that people are now putting into, what's the right space for them. And bearing in mind that actually the space cost is a relatively small cost for most of our businesses relative to cost of their staff. What our customers are looking for is staff that can attract and retain the quality of staff they need for their businesses. And that doesn't necessarily mean that they're going to sacrifice those requirements and go for the cheapest option, which undoubtedly, sometimes the gray space will be. And so I think you'll find, there'll be a flight of quality. And quality, I think, is a word that is much used again, a bit like flexibility. For us, quality is around the quality that our staff and other people's staff will see. So the staff, the employees within a business, what they see in terms of appeal of that space. So I don't think that actually that's a huge threat. But undoubtedly, there is more gray space on the market. Equally, some of the competition in terms of what people see in the marketplace has fallen away. I mean, particularly in the service office sector, they don't directly compete with us. There has been quite a few notable failures in the last year or so. And as those spaces don't really directly compete with us. I don't think that really changes the marketplace for us. But equally, does drop an opportunity in terms of maybe real estate that may be available. Because certainly, having raised the GBP 300 million from the corporate bond. We're well placed to actually take advantage of opportunities in the market. And we are scouring for opportunities to grow our footprint. Will highlighted earlier, relatively low market share. There's still a lot to go for around London. And so I see no reason, I've said this many times before, why we can't double the number of dots on the map around London.

On that note, could we comment on potential acquisitions in the market?

As is nothing actually imminent, I think I'll defer until we get to the year-end and talk about where we are in terms of acquisition and disposal activity.

In terms of competition, are we seeing more orderly pricing from larger businesses like WeWork.

Will, would you like to comment on that?

Good question. I wouldn't want to speculate on what their pricing. I mean, I don't know if people are aware, but we don't publish their prices on their website. So it's very difficult if you're not a WeWork customer to know or say -- speaking to even directly to know what those prices are. But what we do hear from the miss -- the shopping that we do in the market. And that we pick up anecdotally is that there are a lot of discounts out there. So I think pricing always competitive. And I think there are those in the market prepared to do -- to be very aggressive. What we focus on and is illustrated, sorry, by what we've talked about today is really trying to make sure that for those prospective customers in the market, looking at space, what we offer, the value that we offer in the rounded sense, the benefits we provide is clearly understood so that Workspace becomes a first choice for them.

And on discounting, can we say anything more about discounts that we've been doing?

Not really. Again, I think it probably moves into what we'll probably be given an update to the market on when we announced our year-end results because also it links into, I guess, the turn on valuations. I mean, all I would say is that what we mentioned in the third quarter is, we have been reducing pricing. We knew we price very much to the demand in the market. So I'd say, obviously, take that as a guide to where the pricing is likely to be for the year-end. But again, what I would say is that the dynamic around pricing brings very much to occupancy. And as we've now seen occupancy stabilize and indeed expecting occupancy levels to improve, then that probably sets a sort of, if you like, a sort of a base on pricing from my perspective.

Okay. We've got another question from the phone. So I'll go back to the operator now, please.

[Operator Instructions] And The next phone question comes from the line of Paul [ Gary ] with BMO Global Asset Management.

Yes. A couple from me, please. The first one, I appreciate the description of the work you've been doing on the marketing side. Do you think, longer term, you've confirmed that basically, there aren't huge battles unchain this business and differentiation is very difficult. Do you think, longer term, there is a way for Workspace to truly differentiate from other players? That's the first question. And then the second question is in terms of potentially achieving that differentiation, is it a question of just outspending others or are there actually things that you can do to be smarter than others, I guess, in terms of your search or your interaction with customers. Can you give us specifics where you think Workspace kind of really do stuff that no one else is doing? Or you have -- I mean, actually know, it's just how much we've got it.

Okay. I think that's definitely a one for Will. And I guess, it underpins why we're investing so much in the capabilities you've seen today with Will and Dearbhla? I mean, actually having that expertise in-house makes a huge difference to be able to answer and actually have confidence about really differentiating ourselves. Will, do you want to?

Yes. Good questions. I think on the differentiation point, I would argue that we are currently differentiated. We just haven't done as good a job as we might have done in making that really clear to our target customers. What I would also say is -- and it comes back to what I talked about in that customer journey end-to-end is our product proposition and having a building and lease terms as we do, is something that can be imitated and others do similar thing. It's the rounded experience that we provide to customers. If you think about other sectors, say, mobile phones, for instance, everyone offers it pretty much the same product offer, but the service and experience of the customer is different. And that's why thinking through the end-to-end experience and using what I've talked about today as a long-term strategy to build on that. And also touching on what Graham introduced at the start, about the initiatives with customers we've got in the pipeline that will take time to come to fruition. It's that aggregate, I think, which is so important to give customers a better experience, which then does differentiate us in the round. And of course, then being crystal clear in how we articulate that. Then on the outspending point, I mean, yes, obviously, if you spend 10x more than your competitor, it's going to put you in a better position. However, I think, as I mentioned in answer to an earlier question, just driving traffic to the site or indeed just building awareness per se isn't enough, it's making sure you've got that really clear strategic foundation around the messaging. We're constantly trialing new things. We use AI as a case in point. So we're using that to better understand through our own data on customers linked to third-party data to use predictive analytics to identify those leads as they come in that we think are going to be most valuable, attractive to us and convert better. And then we're starting now to use that to target prospective customers online. So I think it's embracing technology in the way that we've started to do is going to put us -- is going to help us. And of course, sitting next to 2 accountants, I would say, spending more money as well.

Yes. Thank you there. Dave and I may have a challenge on that. But I think what I would say also, just adding to Will's point there is when I -- going back to what I presented very early on, which was sort of the operational priorities that I was sort of raising when I first became Chief Executive. It's great about capturing customers. It's in about providing a great service while they're with us. And actually, a lot of what we haven't covered today, but we will be covering in forthcoming presentations, is actually about raising the bar in customer service. And out of that, then getting the advocacy. So customer recommendations, which is, by far, the best way of driving demand as we go forward. Both of those are things that I'm absolutely focused on that we are needing to improve. Having said that, we're in a great position already. And indeed, funnier thought, I just received the update on our customer survey that we sent out recently. And it's heartening to see, actually, the high levels of support from customers, even when they've been through a year, a challenging that has been, in terms of saying they would recommend us to others. And that's a testament, I think, to way we've treated them through this year. And you'll recall that we gave all our customers a 50% rent reduction in the first quarter of last year. And that would cost us GBP 20 million. But actually, I think that and the way we supported them as they wanted to manage their space requirements. Has put us in a great place. And that's a sort of example, I think, is where we can spend a huge amount of money, but if you don't then deliver on the quality of the service and support to those customers, you might as well just throw that money away.

The next question is a follow-up from the line of Paul May with Barclays.

Just a couple of additional ones for me. I think you mentioned at the half year stage, you were trialing some fully fitted space in a couple of your buildings. Just wondered if that trial is something that is part of the new marketing program, part of the differentiation or if it was something that was trialed and realized that it wasn't going to work. And then also second question is, you mentioned around utilization at, I think, sort of running at 30% of pre-COVID levels. As a proportion of total office sort of space, what was the utilization in a sort of normal time? Are we sort of talking 80%, 90% of sort of full capacity or was it lower? Just to get a feeling as to exactly where we are relative to total.

Okay. Paul, I'll do the second question, first because that's an easy one. It's all relative to 100% being pre-COVID. So it's 30% of what it would have been pre-COVID. So we -- basically on WiFi usage. So -- and it's really -- so the baseline is pre-COVID. So assumed before with 100%, not a lower than percentage previously. And I guess, yes, so the other question was on...

Fully fitted space.

Fully fitted space, sorry, yes. So on fully fitted space. Sorry, yes, we trialed that at center which was Mare Street in Hackney when we launched that last year. Unfortunately, we've launched it just as obviously, the pandemic hit. So I think that trial will be extended through to this year. It hasn't taken off as strongly as I would have hoped for. We'll see how it goes. And actually, what we're doing there now is potentially reducing amount of furnished space and actually launching shell space in its place. And we'll compare the 2. So I think it was a view that not a service office play, but actually, for some locations, there was potentially demand for something with furniture. I would say that, yes, I would say it's still undecided whether or not actually that is a product that we will be following up with elsewhere.

Couple more questions coming through the web. How have ancillary revenues fed through COVID? And what is the recovery potential?

Okay. I'll pick this one up, but I might just check with Dave. Our main ancillary income that we talk about is meeting of income, which in pre-COVID levels was around GBP 2 million in terms of ancillary income. That obviously dropped pretty much to 0 through lockdowns because actually, we weren't really encouraging people to use meeting rooms. Indeed, actually, we stopped offering them on the website. That's starting to pick up again. So the majority of ancillary income, because actually, they were linked to customers in occupation would have dropped to 0 of which meeting rooms are by far the most significant. There were some other ancillary income from things like telecom services, et cetera, which probably would be impacted to a lesser extent. But I would assume from this that actually you can -- during lock down, most of those ancillary incomes revenues would have been very much diminished. But interestingly enough, we are now seeing quite a strong take-up as customers coming back. To the use of things like meeting rooms, both actually existing customers and third-party customers. So I'd expect those to recover pretty quickly as again, we see customers returning to their offices. Dave, is there anything else you're interested in?

No, I mean, that's pretty much worth a word. I think what I would have said, as I say, I think, if anything -- I mean, it obviously has been very significantly impacted over the last year. But if anything, it probably is recovering ahead of sort of utilization levels as the increase -- I think there is an increased demand for meeting rooms, and it's an area that we have been investing and we'll continue to invest in going forward.

So some questions on customers. What percentage of customers have been with us for 5 years or more? And to what extent was last year's occupancy drop driven by longer-term customers versus newer customers? And sorry, one additional on the space sizes requirement that customers that we're seeing from new customers now? Are we seeing any change in the space size requirement?

Okay. On the first 2, because that will be something I'll be looking at in-depth actually at the year-end. Again, I'd like to unfortunately defer and answer those questions around the shape and the tenure of customers. To that point, you'll recall that we did quite a lot of analysis at the half year around customers and customers have moved out and customers stayed with us. So I think I'll cover that then. In terms of the mix, in terms of unit size, there's been a -- I guess, a marginal reduction in the average size of space the customer taking, but it's not material. So the typical customer that we are seeing takes anything between 300 to 1,000 square feet at the moment. And that's been pretty much the same all the way through pre-COVID times as well. I would expect actually to be -- the demand for a slightly smaller space because actually, just the nature of the new customers coming through, they generally start smaller, but grow quite quickly. And that's typical of a post-recession phase that we've seen. Certainly, I saw through the last financial crisis, but there's nothing material, I'd say, in terms of the trends.

One for Will, I think, does a stronger brand proposition open up other opportunities, for instance, managing buildings for others through your platform?

Potentially, a strong brand can lead to lots of things. But I think for us, it's the model that we've got, which combines the ownership of the buildings, the development of the buildings and then the management of them, which I think is really is really unique about our business and our brand, and I will want to build from that. But I think having a strong brand has huge amount of benefits for us that goes beyond simply awareness. So I think it's something that's well worth us continuing to have.

And a question on ESG, I think, does the green angle play any part in the campaign? Or could it in the future?

Yes. So absolutely. So what we shared today is the launch activities to get things out. But absolutely -- to start the campaign, absolutely, within our sort of messaging plan, the fact that our buildings have more light space, the most, lots of open space and outdoor space actually it creates a perfect environment for customers looking for, as Graham mentioned, for the right place for their business and their teams that will provide sort of the wellness, the well-being and that I think people will increasingly look for and are increasingly look for after lockdown. In addition, the green credentials we have and the commitment we have to it, again, is something that customers are increasingly looking for. And sort of as generations come through and new business owners come into the market, we know because we've seen it ourselves. And just from our own customers, these things are increasingly important. So absolutely, it is part of part of our plans going forward.

Okay. We have 1 last question. So what are the differences between attrition rates, the difference in attrition rates between direct and organic inquiries and inquiries that come from brokers.

Attrition rate. Well, I can answer that, only because I ask the same question. So around 33% of our inquiries are from broker leads. And actually only 20% of the deals are from brokers. So I'm not going to do the math here, but you can see that actually we have a far better, if you like, conversion of organic leads through to deals that we do on the broker side, which is not surprising because if you think brokers, I mean, their prime focus is around customers that are taking service office space, we tend to deal with those as they grow out of their service office space. So we will have quite a few customers coming to us for inquiries and for viewings. But actually, what we offer is not really fit at that stage of their growth. They will probably want the serviced office type hotel type environment, furniture provided, all the services provided. From my perspective, that's great, because actually they are a respective future customer, and it gives out the visibility of our brand. So I'm very comfortable that actually it's a less effective medium for us in terms of conversion, but it does get a much broader visibility to the market.

Okay. There are no more questions.

Okay. Right. Well, on that note, I thank everyone, for your time today. Hopefully, as I mentioned earlier, you found that useful and interesting. And you've got the sort of, if you like, more of a flavor of what is sitting behind the operating platform that we have at Workspace. Can I also remind you that we announced our 4-year results on Thursday, the 3rd of June, and I look forward to seeing you then. Thank you.

This presentation has now ended.