Kenneth Lam originally hails from Hong Kong and came to Shanghai 13 years ago to manage retail chains. For the last four years, he has been working as the managing director of AsianBiz, a business service provider which specializes in serviced and virtual offices, and in complementary services such as outsourced accounting, HR and legal support. He spoke to CHINA ECONOMIC REVIEW about the state of the commercial real estate market, dealing with competition, and how his company hopes to benefit from the Shanghai World Expo 2010.
Q: The commercial real estate market has been hurting for nearly a year now. What are the current conditions like?
A: There’s always a cycle in these markets. From 2005 to 2007 there was actually a shortage of office space. Occupancy rates were very high, tracking the booming economy. And people kept building office buildings. At the end of 2008, when the crisis started, there were a lot of new buildings just coming online, and so it now appears that in some regions in Shanghai there is an oversupply, especially in Lujiazui in Pudong. In 2009, close to 70% of the new grade A office space was put up in Lujiazui. So regionally there’s an oversupply, and there are still a lot of new buildings going up. Now everything is slowing down, but it will take a while to digest all that inventory – maybe two years. Even though some projects have been slowed and there will be a lot of investors coming to China to set up new offices in 2010, we are still going to have more supply than demand.
Q: How is the serviced and virtual office sector faring in this context?
A: In comparison to the conventional office market, our serviced office business has benefited from the market changes. In fact, over the last 12 months, so many companies were fighting for survival that it was kind of a benefit to our company. There was a downsizing, and everybody tightened up with their budgets and wanted to be more flexible with their leasing terms. This all drove demand for our products. In fact, we opened three more business centers in 2009.
Q: What is your competitive strategy? It seems like there has been lots of market entry in the serviced office sector.
A: In terms of pricing and cost compared to the whole industry, if you consider price ranges on a grade of A to C-, we have been positioning our pricing between C and B-. It looks like we did the pricing right. There’s been a lot of movement. Eighty percent of the companies in China survived the downturn, but they still need to cut their budgets for office space, and we fit their budgets. Our secondary services also benefited. During the course of the crisis, companies downsized their teams and outsourced their accounting and HR work to us, which easily cut their overhead by 50%.
Q: And how much are you expecting to benefit from the Expo?
A: We are going to benefit a lot because the Expo paints a very attractive picture for investors, even for very small companies that want to come here and test the water, in Shanghai in particular. At the same time, these companies are still looking at their costs. On one side they are looking forward to a very exciting market in China, but back at home they still have uncertainty, so they are tending to be conservative. They are so desperate to find solutions and information on how to handle their accounting, taxation, employment as well as their incorporation. And they want to save money. All this plays to our advantage.
Q: How are you finding your customers? Any particular new marketing strategies?
A: To be frank, a significant portion of new customers are being introduced by our current clients. Also, we’ve been very active in business networking, which is always the most cost-effective way of doing your marketing. In addition, we have begun cooperating with overseas marketing partners in different markets to help present our services to foreign customers. During the Expo period, we will also try to gain more exposure through advertising.