For companies newly looking to set up a presence in China or expand their existing China operations, the prospect of costs incurred when entering an unknown market can be daunting, appearing as a sort of “make or break” venture. One lesser-known option available to foreign investors in this position is the use of serviced offices (also known as “executive suites”).
Especially prevalent in fast-paced Asian markets like China, Hong Kong and Singapore, serviced offices are rentable office spaces that come fully furnished and equipped with technology and service amenities. For example, a premium serviced office in Shanghai might provide tenants with secretarial services, state-of-the-art IT infrastructure and conference space.
The benefits of such an arrangement for a China growth strategy are manifold, especially for start-up operations. Most significant among these are the cost savings achievable through the use of serviced offices rather than a traditionally leased space.
Rather than signing a years-long lease, serviced office providers offer lease terms of as short as 1 month, with significantly reduced deposits and virtually no fit-out costs for incoming tenants. A number of staffing costs are also eliminated by the use of serviced offices, including those incurred by reception, IT, and HR functions.
“With commercial real estate prices in Shanghai having reached an all-time high and vacancy rates remaining low, a serviced office is the most viable solution for start-up companies in the city,” said Michaela Julian of Servcorp. “For a one-to-ten person business, the investment of a long-term lease, office fit-out, team salaries, and other operational costs can be totally eliminated.”
Flexibility is also a distinguishing feature of serviced offices, which can minimize the disruption to company operations caused by drawn-out move ins, and accommodate extremely short-term or small-scale tenants. For companies with uncertain growth prospects, serviced offices offer a responsive solution in the event of rapid growth or contraction of operations.
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Other benefits are less tangible, for instance the corporate image that serviced offices allow resident companies to project; these spaces are often located in prestigious real estate such as Shanghai’s Kerry Centre or Hong Kong’s International Finance Centre, which would otherwise be beyond the financial constraints of small businesses. As well, from an account perspective, choosing a serviced office allows companies to more easily estimate their costs, collapsing numerous charges into a single monthly bill.
The downsides of serviced offices, while existent, can largely be mitigated through advance planning. Additional fees, for example, are often charged on a pay-per-use basis for conference rooms and other amenities. For this reason, business owners are advised to estimate their needs ahead of time to determine whether a serviced office will be the most economical option. Once reaching a certain size, companies may also feel constrained by the need to share their space, and see fewer savings versus renting a space of their own.
Taken as part of a China growth strategy, serviced offices allow foreign investors to dip their toes in the water of the market and drum up initial interest in their business. While a traditional lease may be better suited for any long-term investment in the country (especially as the basis of a company’s officially registered address), the flexibility of serviced offices makes them much less committal than even the most basic of China investment vehicles, a representative office.
By Matthew Zito, Dezan Shira & Associates
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
For further details or to contact the firm, please email firstname.lastname@example.org or visit www.dezshira.com
Jan 25, 2015