Controlling start-up costs is a big concern for foreign companies entering the Chinese market. Serviced offices, which offer ready-to-use workspace and on-demand services and facilities, are an attractive way to minimize expenditure, especially for higher-end clients looking for grade A office space.
As the country’s serviced office industry expands and diversifies, suppliers are facing increased competition and offering new services to potential tenants at lower prices.
“More serviced offices are coming onto the market which is beginning to depress prices,” said Jerome H. Vaughan, director of Belfrey Partners. “Operators must offer aggressive incentives in order to maintain capacity.”
China’s wider playing field includes both new international and domestic serviced office operators. MLS Business Centres, for example, the UK’s second-largest serviced office provider after Regus, opened their first of many properties in China last month. “We are looking to open up to 50 centers in the next five years here,” said Joe Clark, MLS’s general manager. “There is still a lot of room for expansion in China, and we see it as a key market for us.”
The old guard
Well-established brands like The Executive Centre and Regus, which have had operations in China since 2001 and 1996 respectively, have also expanded aggressively in the past 12 months, citing rising demand and full occupancy.
Regus continues to maintain its role as the country’s industry leader in serviced offices. The company runs 25 centers on the mainland and in Hong Kong. In the last year, Regus has opened four new serviced offices in Hong Kong, Beijing, Shanghai and Chengdu.
Increased competition means lower prices for tenants. Faced with this year’s more competitive price tags, companies that had written off serviced office space as too expensive – like start-ups and small- and medium-sized enterprises (SMEs) – may now find serviced offices more attractive than before.
“People get very focused on square meter costs,” said Vaughan. “Many small companies now entering the market rent offices with a little more space than they need. They think if they choose a serviced office, their costs will increase later on, as they add people. But they waste a lot of administrative costs and renting an office has a lot of hidden costs.”
MLS’s Clark agrees that the flexibility of space in a serviced office suits smaller companies.
“It’s all about controlling head count,” he said. “In a growing, emerging market like this, people don’t know what their staff will be like in six to 12 months, so serviced offices are more attractive, especially for SMEs who are looking to expand.”
One area of China’s serviced office market that has emerged to cater to SMEs is boutique serviced offices – often smaller spaces that seek to attract a specific type of clientele. Service-oriented companies, for instance, like luxury brands, fashion houses or design agencies, may find the unadorned functionality of regular serviced offices at odds with their company’s image.
Office Lister has responded by developing The Mansion, a serviced office property housed in the former home of the Ho family. Built in 1919, the neo-classic estate now sees office workers walking to meetings in its marbled halls.
“The Mansion is the city’s first serviced office in a historical building. This setting attracts certain clients, for example companies who produce deluxe products,” said Sally Huang, Office Lister’s general manager.
While Office Lister courts luxury clients, another boutique office provider, OASIS Boutique Executive Offices has begun to woo younger, hipper clients from abroad.
“We are not trying to target the power suit people,” said Maria Gilsenan, OASIS’s marketing manager. “We are after the creative types, the new entrepreneurs.”
OASIS’s property in Shanghai’s Xintiandi comes equipted with services one may not associate with a nine-to-five office job. In the downstairs café, tenants can take a breather at the oxygen bar – the city’s first, Gilsenan claims. Hang a green door-hanger outside your office and OASIS will pick up your dry cleaning, do your shopping, plan your next travel itinerary or deliver lunch.
Yet in the country’s fast-changing market, even new-comers like boutique providers see the arrival of new competitors in their niche in the not-too-distant future.
“This area is very competitive. Overall I foresee consolidation among some of the established business centers as well as new entrants into the market,” Gilsenan said. “We are seeing more and more local players entering the market because they think the serviced office market is a cash cow and the rate of return is very quick, but it’s not. You have to be in this for the long haul.”