Unreally good

To Cameron Wilson, a freelance business consultant in Shanghai, a virtual office made a lot of sense. If nothing else, it cut down on wasted hours sitting on the train during his commute. “Time normally spent twiddling your thumbs on public transport can be put to better use,” Wilson said.

Being able to work from anywhere with an internet connection, while knowing that someone was collecting the mail and logging calls, provided peace of mind while negating the need to sit behind a desk for eight hours every day.

It can cost anywhere between US$117 and US$220 a month in Shanghai to rent a basic virtual office. For that price, customers get a “secretary” – although they will be sharing this person with several other businesses – a mail box and a call forwarding service. They also get a swanky downtown address to put on their business cards.

Counter-cyclical

It seems that both the virtual office industry and its upgraded cousin, the serviced office, are flourishing in China despite – or because of – the travails of the conventional office sector.

“We had a record month in virtual office sales last month, an all-time record high,” said Hans Leijten, regional vice president for Regus East Asia, which offers both virtual and serviced offices in locations worldwide.

Mind Offices manager Arthur Chelly said he had not seen an increase in demand for virtual offices recently, but its serviced “one-workstation” promotion – for around US$292 a month – has been popular. Meanwhile, virtual office broker Gael Ovide-Etienne, who acts as a go-between for customers and companies all over Asia, says that enquiries about virtual offices have risen by 20% over the last six months.

“I really think that the whole industry is benefiting tremendously from the crisis,” he said.

But Ovide-Etienne pointed out that it is only the big players in the industry that are doing relatively well. The smaller virtual office providers – of which there are hundreds in Shanghai alone – are slashing rates. Even the Executive Centre, a mid-sized player which rents virtual offices in a number of locations in Asia, is currently offering  50% off on its virtual office package.

Too easy

The price war is thought to have as much to do with the market dynamics as it does with any kind of decline in demand brought about by the economic downturn. Since there are few barriers to entry for virtual office providers – the initial investment is limited to space rental, wages, and connectivity – and since the product is difficult to differentiate, the market is oversaturated and competition has become intense.

Nadia Zhu, general manager of the Executive Centre, said that there are so many companies now offering virtual offices in China that it is difficult for people to separate the good packages from the bad. But Zhu stressed that her company has already survived previous market downturns over the years, and is confident that it will overcome this one too. She added that since the financial crisis is costing people jobs, many of those people will use a virtual office to get back on their feet.

The bigger players are even more confident. Servcorp is Regus’s primary competitor, offering a similar range of products. Maggie Li, the company’s virtual office manager, agrees that the biggest problem for virtual office providers in China is competition, not recession.

“When we first came to Shanghai, we were the only company here. Now there are many local companies offering their services, too,” she said.

Li admitted that business has slowed down, but emphasized that times were good for the industry. She suggested that in a climate of uncertainty, virtual offices appeal to cautious business people who are reluctant to sign a long lease in the middle of a global recession. 

“People don’t know if they have to upscale or downscale,” agreed Regus’s Liejten. “We see agents advising their customers to park themselves at a serviced office until the market conditions become clearer.”

Although they are feeling the squeeze, neither Regus nor Servcorp plans to cut rates.

“I do see price pressure in the market,” said Leijten. But he believes Regus’s economies of scale will help it prevail over smaller operators in the long run. Leijten said the company usually retains customers for one to four years until they move into a conventional office – or stop needing an office.

Regus and Servcorp’s advantage over the smaller players is in part thanks to their ability offer upgrades to serviced offices. Also, unlike the smaller players, they can offer integrated office solutions in Asia, Europe and the US, which allows clients to move seamlessly from location to location.

As far as conventional office space is concerned, Leijten noted that companies that are taking a wait-and-see approach prefer shorter lease periods.

The real thing

John Woodberry, 31, director of online education company tutorsinchina.com, rented a desk in a shared office for around 18 months. He said that while working in an office surrounded by strangers is less than ideal, the lack of overhead made up for it.

Still, he said, even a shared office is no substitute for the real thing.

“You always felt like it wasn’t really your office. When people came in to see you, you would have to explain that you didn’t actually work with the people sitting around you.”

Those who have used virtual offices also agree that they are not a long-term option for any serious business. Wilson “moved out” of his virtual office almost a year ago, tired of the lack of direct contact with real people.

And while virtual and serviced offices are a risk-free way of finding your feet in Shanghai, most agree they  are only ever a temporary measure. Broker Ovide-Etienne said that for any business, building company culture and spirit is important, and you cannot do this in either a serviced or a virtual office.

Perhaps this is why rental agents for real offices don’t seem threatened by the current popularity of alternative solutions. They feel that even though the industry is booming in 2009, people will always want the stability of a real office, where they can build their team and establish a presence.

“Unless I am mistaken, [virtual offices] do not threaten the real estate industry as a whole,” said a real estate professional who wished to remain anonymous. “The online office has been available for at least a decade, a period during which most of the commercial real estate market enjoyed an unprecedented boom.”