Competition starting to intensify

Executives in the serviced office sector agree that the coming months will see intense competition - but they may be wrong in assuming that big international business centres will dominate.

Regus, the world's largest workplace solutions provider with more than 1,100 centres globally, including 11 locations in Hong Kong, was once the city's largest. According to entrepreneur Andrew Chung, his operation has put Regus in second place in terms of square feet.

Chung co-founded Compass Offices in December 2009 with 10,000 sqft and the company now has 220,000 sqft of premium offices over 23 floors in Hong Kong, Singapore and Tokyo. He says 180,000 sqft of this is in Hong Kong. However, the race to be league leaders in terms of size may be closer as Regus will be opening its 12th Hong Kong location in May, with 18,000 sqft in Times Square, bringing its total amount locally to about 180,000 sqft.

'Established global players that have been in Hong Kong for over 15 years have been surprised at this rapid growth, which is unprecedented,' Chung says. 'Even one of the world's largest players took over three years to establish its first eight centres in Hong Kong.'

All this has seen competitors pondering whether a market bubble is developing in the serviced office sector with a high chance of some operators going to the wall or being acquired by larger players.

Chung is unswayed. After having raised HK$100 million for the Compass venture, he is now targeting an initial public offering for the company in two to three years and says property funds and international investment houses are eyeing progress.

Chung and Compass co-founder Lachlan Sloan took advantage of the economic downturn when office rents plummeted. It was not only shrewd timing. They worked together as corporate headhunters and were themselves serviced office tenants. Their executive search knowledge helped them build a sales team, which has grown from four people to 10. A belief that there should be no hidden charges is among their motivations. It comes from the days when they were presented with surprise bills for miscellaneous items and Chung says they are determined not to see this happen with their tenants. 'We had no choice but to go our own way.

'The cutting edge with us is transparency,' he says. 'With some big players, most of their clients complain of this, so they leave them and come to us. The main reason being hidden costs on anything from somebody coming along to spend time discussing the quality of a chair to handing you a junk fax.

'We've done away with the hidden costs - it's not that clients don't like to pay them, they get annoyed and consider them a rip-off.'

Another problem they encountered was unreliable IT. A three-layer network infrastructure is designed to reduce the risk of network failure. 'Internet is crucial, so if it goes we can replace the connection as we've got three links going,' says Chung, who adds that this is a big draw for hedge fund operators.

He says services such as technology, HR and accountancy are strengthened by a partnership with Encore Professional Services, a business outsourcing and consulting firm.