Serviced offices find takers as SMEs chase convenience

More Chinese companies are choosing to use serviced office space - furnished workplaces that also offer business administration services - rather than buying or renting their own facilities, according to one of the country's leading providers of such offices.

Paul Salnikow, chairman and CEO of The Executive Center, said over the past five years its China client base had evolved from primarily foreign companies to being divided equally between overseas and domestic customers.

That expansion has been driven, said Salnikow, predominantly by the emergence and growth of the Chinese service industry, with many more small and medium-sized firms operating in the fields of finance, IT, consultancy, trade and recruitment.

The situation has come about, he said, because "more Chinese firms are serving the Chinese, rather than foreign corporations serving the Chinese".

One of the serviced-office contracts signed recently was by China Everbright Ltd, the financial services company, which in March moved from traditional to serviced-office accommodation in Shenzhen, Guangdong province.

Xu Shaoli, its senior office executive, said it considered the offices more convenient and practical.

Small companies are increasingly favoring the serviced model too because they are seen offering "cash flow advantages, more prestige and more efficiency", Salnikow said.

Kan Ken, deputy general manager of real estate advisory firm Colliers International Shenzhen, said: "Many more startups and SMEs are expected on the market in future, after becoming better supported by more venture capital investment and private equity."

The demands of Chinese companies are also changing, say the experts, with more smaller companies looking particularly to upgrade their surroundings.

One aspect of that, said Salnikow, is the desire to introduce more of what he calls "manager suite offices".

A typical layout might offer a large private office for the boss, plus open space for the rest of the team.

"We are being asked for a much higher proportion of manager suite offices in China than in other markets," he said.

More companies are also requesting a main entrance straight from the elevator, with their own reception areas. "It still matters to feel independent," Salnikow explained, "particularly, if they offer a branded service."

Ken agreed that such "service differentiation" has become key, especially given it still remains difficult for some local companies to accept the idea of sharing offices.

Both experts agree that China's recent relatively slower growth has also helped the serviced-office sector, and more firms prefer to sign up for shorter periods rather than agree to long leases directly with landlords.

In Shanghai, one of the industry's largest city markets, The Executive Center plans to open another three centers next year. In Hong Kong, another of its top regional markets, two are planned despite the SAR's decreasing retail and tourism figures in recent months, said Salnikow.

"During an uncertain period or a declining market, companies use serviced offices as a hedge against uncertainty," he said.

The growth in the serviced-office market has also seen the emergence of a growing number of local Chinese providers.

SOHO China Ltd, one of the largest prime office real estate developers, for example, launched the SOHO 3Q project in Beijing and Shanghai, providing 3,000 work stations with short leases, meeting rooms, and beverage and printing services.

The company claims its occupancy rate is about 50 percent and an online office-space bidding process in September attracted more than 20,000 bids.

Salnikow predicts that a Chinese temporary office-space provider to emerge on the global stage within the next decade.