Pressure on operators

PUBLISHED : Monday, 12 December, 2011, 12:00am
UPDATED : Monday, 12 December, 2011, 12:00am

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Serviced office operators are facing several problems as the global economy continues to deteriorate.

Rising inflation has already affected businesses, with product prices, wages and rents higher than last year.

'Inflation makes everything expensive,' says Andy Chong, managing director of OneStart. 'Rents in Central [went up] by 50 per cent in 2010. It is hard to expand our business.'

Demand for serviced offices has fallen in recent months, he adds, as clients feel insecure amid economic uncertainties and are adopting a wait-and-see attitude.

'Business has fallen in the last three months,' Chong says. 'When I talk to some of my clients, they say it is impossible to do a business forecast; many business plans will be delayed or even stopped.'

While the demand for serviced offices is weakening, there has been an increase in supply as more players enter the field which, up to now, has been profitable. New entrants are likely to offer cheaper prices in an attempt to gain market share, putting established players under pressure.

Lachlan Sloan, group director of Compass, believes the demand for serviced offices in the first quarter of next year will be moderate.

'Many European companies see Asia as a market they must develop in order to grow in the longer term,' he says.

Yet, pressure will increase on serviced offices from traditional office leasing, as a potential decline in office rates in the short term may create a window of opportunity for serviced office tenants to move into more traditional office solutions.

Challenges always come with opportunities. 'It would be bold to suggest we are recession proof,' Sloan says. 'However, it is not uncommon in unstable markets for clients to [put a] hold on long-term plans and opt for the flexibility of serviced offices.'

Chong and Sloan expect to see an oversupply of serviced offices in the coming year. Chong says operators should attract clients by upgrading business services rather than lowering prices, so that the industry can offer tenants more flexible business solutions. He is investing in a customer relations management system that offers clients one platform to manage their e-mails, phone calls, faxes and mail.

The mainland continues to attract overseas investment and the outlook for serviced offices there is brighter, Chong adds. 'The China concept is still hot. Foreign investments will not stop.'

He will not rush into the mainland market, as he expects rental prices to drop and, in the meantime, he will offer cross-border consultancy to help clients develop their mainland business.