OFFICE MARKET:BUSINESSMAN MICHAEL Kelly readily admits he paid "top dollar" for the former Hume Street Hospital - over €30 million in 2006. So his decision to plough a further €20 million into the property to turn it into an upmarket serviced office centre is a gamble he can't afford to lose.

But the high stakes could fall in his favour. As the economic climate remains jittery, the conditions may result in companies shunning lengthy leases.

Such a strategy is well established in the UK, where the serviced office market is worth hundreds of millions of pounds.

But in Ireland, the market looks ripe for exploitation and Kelly is hoping the Hume Street acquisition will position his firm, Glandore Business Centres, as the sector's principal player.

Serviced offices are the perfect answer for commitment-phobic corporates as space can be contracted or expanded; there are no entry or exit costs and rent periods can be as short as three months.

Rates are charged on a per desk basis rather than the amount of space occupied. At Glandore, which pitches for the top end of the market, prices range from €1,000 to €1,500 per workstation.

The idea is that companies save money because all the costs and capital outlay associated with a typical office property are bundled into one flat-rate fee. This means economies of scale can be achieved on services such as administration, building security, electricity, photocopying and everything else. Yet a report produced in the UK shows that, in the long term, and particularly on certain properties, conventional leases tend to be cheaper.

However, what sells serviced offices, according to Kelly, is flexibility. He claims that demand has never been greater, and occupancy levels are at 80 per cent at his firms' Dublin properties; a Georgian house at 33 Fitzwilliam Square and the former Bank of Ireland premises at Fitzwilliam Hall, which overlooks the Grand Canal.

Kelly paid €22 million for the building in 2005 and put another €10 million into its renovation, installing state-of-the-art IT and security systems and constructing a spacious conference centre with views of the Dublin mountains.

The spacious 2,787sq m (30,000sq ft) of office space, accommodating 250 workstations, is, Kelly says, "five-star" and his clients range from AIB, Bank of Ireland and Vodafone to small, start-up enterprises.

Glandore's three properties, including Arthur House in central Belfast, are marketed on the basis of their sumptuous surroundings and the high level of support provided. Kelly predicts the addition of Hume Street will position Glandore as the market's largest player. And, despite the sudden reversal in property values, he has no regrets about the stiff price paid for the former hospital, claiming "properties like that" crop up "once in a lifetime".

Yet there may have been some disappointment among Glandore's new neighbours. IPUT, one of Ireland's largest property institutions, owns the block next door, while the mock Georgian building at the corner of St Stephen's Green is owned by the Chicago Spire developer, Garrett Kelleher.

All the elements were there for a site assembly, and speculation was rife about whether a joint venture project could be agreed.

Although Kelly met with both IPUT and Kelleher, it seems such a development was never on the cards. He says the 0.4-acre site constitutes the "perfect size" for a Glandore business centre and when construction and restoration work are completed at the end of 2009, it will become the company's flagship property.

The listed Georgian property will be restored, although there will be no residential element in the development. Kelly's first planning application for the site, which included some residential space, was rejected by the local authority partly because it contained an insufficient number of apartments. However, Kelly says that the buildings have not been lived in for "200 years".

His arguments clearly struck home with Dublin City Council as his second application, with no residential space, was approved.

If all goes to plan, Hume Street will not only raise Glandore's profile, it will push turnover into double digits.

Mr Kelly says his company will generate €6 million by the end of 2008 and he predicts this figure will increase to €10 million in Hume Street's first year.

However, the latest registered accounts show Glandore's net liabilities currently exceed its net assets by €334,391 - a situation its auditors Grant Thornton stated could "require the convening of an extraordinary general meeting of the company".

Glandore submits abridged accounts to the companies' registration office because of its status as a small company. So, while it is impossible to glean a full understanding of its health, it has a number of challenges ahead.

In the UK, the serviced office market has suffered greater swings in fortune than the traditional long-lease sector. After the dotcom crash in 2000/01, some of the largest players narrowly escaped bankruptcy. Today however, it is a different story, with the serviced office industry accounting for up to 8 per cent of the market.

But in Ireland there is a long way to go before that level of penetration is achieved. As Mr Kelly points out, many businesses need to be "educated" about the advantages of serviced offices. "There is still little realisation in the general market as to the benefits of having certainty on the costs and having the flexibility as well."

And he claims that "most people setting up an office go the traditional route. They have to find the space, furnish it and get in and pay for all the utilities . . . that's a significant commitment and huge time-waster - we present all these things in one package."

As the economic uncertainty deepens, Mr Kelly is banking on the cost-saving message hitting home.

Glandore now employs 30 people and that figure will significantly increase with the addition of Hume Street.