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China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
China Businessparks Full Screen
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China Businessparks Full Screen

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  • 1. World Winning Cities Global Foresight Series 2008 Real value in a changing world China Business Parks The next real estate opportunity
  • 2. World Winning Cities • China Business Parks • June 2008 • 2 China Business Parks The business park sector in China is still in its infancy with a development history of little more than 10 years. However, the sector is now firmly poised for ‘lift-off’ as the property market responds to the increasing requirement for high quality decentralised business space. This paper looks at the short history of the business park market in China, reviews the future drivers of growth, identifies the likely business park hotspots and assesses how the development and investment landscape is likely to evolve over the next few years Executive Summary business park space in China, which is China’s emerging business park sector offers estimated to stand currently at circa 17 million sq robust demand fundamentals. Strengthening m, is expected to more than double to close to occupier demand for high quality business park Business Parks 38 million sq m by 2010 (based on stock space in China is being underpinned by the City Classification estimates in 15 cities). Over 60% of the current expansion of R&D activities of hi-tech and stock is located in four cities – Shanghai, Beijing, pharmaceuticals firms seeking high specification Prime Markets Dalian and Guangzhou. A number of other cities space, by the rapid growth in Business Process Shanghai, Beijing such as Chengdu, Suzhou, Xian and Tianjin are Outsourcing (BPO); and by large MNCs expected to witness a sharp increase in business increasingly seeking campus style space outside Transitional Markets park activity over the next few years. of higher cost CBD locations. Demand is being Dalian, Chengdu further boosted by the government’s strategy of Hangzhou, Xian Jones Lang LaSalle’s research has identified 15 moving the Chinese economy up the value chain Nanjing, Guangzhou business park hotspots across China, which we and its policy of mapping out R&D and BPO Shenzhen, Suzhou believe will be the focus of future business park clusters across the country. activity over the next decade. We have grouped First Mover Advantage Markets these cities into three market types, each group The real estate development market is now Tianjin, Jinan, Chongqing offering different opportunities and responding to the increasing demand for higher Qingdao, Wuhan characteristics for occupiers, developers and specification, lower cost space with larger floor investors. plates in decentralised locations. The stock of ©2008 Jones Lang LaSalle. All rights reserved
  • 3. World Winning Cities • China Business Parks • June 2008 • 3 Prime Markets China Business Parks - Real Estate Activity v Risk Shanghai and Beijing have been the pioneers in the provision of higher quality business park Investment Risk Index space. They account for more than one-third of Transitional Markets 0.4 Prime Markets China’s current business park stock and are host to China’s most high profile parks, notably 0.6 First Mover • Caohejing Hi-tech Park and Zhangjiang Hi-tech • Dalian Advantage Markets • Beijing Shanghai • Shenzhen Park (in Shanghai) and Tsinghua Science Park in • Chengdu • 0.8 • Wuhan Xian Beijing’s Zhongguancun District (China’s ‘Silicon • • Hangzhou Guangzhou Suzhou Valley’). Robust occupier demand in these cities • • • Nanjing 1.0 is being supported by the rapid expansion of Tianjin • R&D activities, growth in back-offices and the 1.2 Jinan decentralisation of business activities from CBD • Qingdao locations. Shanghai and Beijing are China’s most • Chongqing 1.4 transparent markets and are currently favoured Business Park Activity Index by established players and new market entrants, 1.6 such as Goodman, CapitaLand, Shui On and 0.4 0.5 0.8 1.0 1.2 1.4 1.5 1.6 Frasers Property. Source: Jones Lang LaSalle 2008 Jones Lang LaSalle business parks sector. The credit crunch Transitional Markets affecting the US markets in 2008 is putting a new has identified 15 cities spotlight on investment opportunities in China, Dalian, Chengdu, Hangzhou, Guangzhou, across China where but the long term impacts on the China business Shenzhen, Xian, Nanjing and Suzhou are park investment market remain to be seen. gradually catching up with the prime markets in we expect the terms of the quality of business parks projects. business park market So far, there are still very few dedicated business These cities are developing their niche markets park developers. Software Park China, which to differentiate from the prime markets, to grow strongly developed Dalian Software Park, is currently the particularly in BPO activities. Dalian stands out most active. However, the opportunities offered amongst the transitional markets; the city has by the business park market are starting to become a premier hub for outsourcing and has attract more domestic players, with companies one of China’s most developed business park such as Raycom and TecPark Development now sectors. Transitional markets are a target for a entering the market. number of international and domestic developers including Ascendas and Software Park China. There are currently a limited number of projects Their participation will help to improve quality on the market that meet international investment and transparency. standards, which together with the opaque business environment have constrained First Mover Advantage Markets developers’ and investors’ expansion Tianjin, Jinan, Chongqing, Qingdao and Wuhan programmes. Most investors are currently currently have lower levels of business park adopting a cautious approach, but they are activity, but their local governments have universally confident about growth prospects aggressive expansion plans, and in order to over the next five years. attract high quality tenants and experienced developers, they are offering generous incentives for new entrants. These cities provide ‘first-mover advantages’, with lower land costs and less competitive real estate environments. We believe that Tianjin offers the best potential to develop as a robust business park market, due to strong government support and the presence of MNCs. The business park sector is now attracting international developers and investors, reflecting the robust long term demand fundamentals offered by business parks, as well as due to the strong competition and tighter regulations in commercial property. Ascendas, Goodman, Frasers Property, Shui On and CapitaLand have, to date, been the most active international developers. A number of US investors such as GE, Blackstone, Morgan Stanley and Goldman Sachs have all expressed interest in the ©2008 Jones Lang LaSalle. All rights reserved
  • 4. World Winning Cities • China Business Parks • June 2008 • 4 A Short History of Business Parks Business Park Evolution The business park sector in China has evolved from the early industrial zones which first appeared back in 1980. During the 1980s and early 1990s these industrial zones largely attracted manufacturing activities. However, as the 1980’s/Early 1990’s government increasingly focused on developing its high tech sectors, we have • Factory Buildings • Light Industrial seen the gradual emergence of business parks within industrial zones; a trend that • Storage/Logistics started in the late 1990s and which has accelerated during the current decade. Mid 1990’s • Mid Rise Offices • Bareshell provided standard quality space but at The existence of high quality business park • Small Scale Office Activities significantly lower rents compared to CBD space, as recognized by the international real Late 1990’s markets. These properties were typically mid- estate community, can only be traced back to the to-high rise, with some buildings featuring large mid 2000s. Nonetheless, today’s business park • Mid to High Rise Offices • Standard Spec floor-plates landscape has been shaped by the several • Low Cost Office Uses waves of development over recent years: • Decentralisation • More recently, we have seen the emergence of • R&D Activities low density campus developments that provide • During the 1980s, development reflected a 2000’s business park space for larger scale activities focus on manufacturing activities and initially • Low Density Campuses and headquarter functions of MNCs. Also, comprised of self-build factory buildings. • Higher Spec stand alone SOHO buildings have begun to Gradually build-to-suit developments appeared • Large Floor-plates appear in business parks; SOHO buildings are in response to a requirement for greater • Headquarter Economy typically less than 4,000 sq m and provide flexibility • High Value Activities space for small to medium size companies • Consolidation • From the mid 1990s, industrial zones Today’s business parks are usually characterised witnessed their first office developments. They by a broad mix of building types, all of which typically comprised of mid rise office buildings, continue to be built in response to very different provided to a basic ‘bare-shell’ specification user requirements, from lower specification semi- and occupied by smaller scale companies industrial units to high quality headquarter offices that compete with the CBD markets in terms of • The late 1990s/early 2000s saw the start of the their quality and working environment. development of decentralised offices, which ©2008 Jones Lang LaSalle. All rights reserved
  • 5. World Winning Cities • China Business Parks • June 2008 • 5 Future Engines of Growth The business park market in China is poised for strong growth, as a number of R&D Expenditure (% of GDP) macro-economic and business factors combine to produce the conditions for Japan ‘lift-off’, characterised by strong demand for high specification, low density business US space across a number of China’s Tier I and II cities. EU15 Moving up the Value Chain UK China China is recognized as the ‘world’s more streamlined approval processes. In order to India manufacturing factory’, a position that it has maintain its competitive edge on a global 0 .0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 established over the last two decades, due to a platform, China industrial policy has shifted Source: OECD Factbook 2007 favourable combination of low cost labour, towards more value-added activities to offset Registered Patent Numbers operations and land. However, China is facing rising labour and land costs. Key targets are Research and Development (R&D), Business increasing competition from neighbouring 400,000 Process Outsourcing (BPO) and Headquarter countries, such as Vietnam and India, which are 350,000 now on the radar of foreign manufacturers activities, all of which generate strong demand 300,000 seeking lower cost business environments and for business park space. 250,000 200,000 150,000 A Global R&D Hub - 100,000 From ‘Made in China’ to ‘Invented in China’ 50,000 0 1990 1995 2000 2005 2006 2007 Source: China Statistics Office anticipated as R&D activities reach levels R&D activities are being actively encouraged achieved in more advanced economies. by central government. Since the 9th Five Year Plan (FYP, 1996-2000), the government has The business park To capitalise on China’s R&D potential and invested hugely in supporting education and hi- market in China is improving productivity, an increasing number of tech industries in order to leverage the IT and pharmaceutical companies have capabilities of R&D. Over USD 10 billion has poised for strong opened their R&D centres in China. According been invested by the China Development Bank growth, as a number of to Xinhua news, 400 out of the world’s 500 in 2007 alone. This has translated into an largest MNCs have already invested and improvement of both labour quality and macro-economic and established more than a thousand R&D innovation capacity. The numbers enrolled in business factors centres in China. university education has increased by eight- fold over the past 10 years. Moreover, returnee combine to produce the The aggressive expansion of MNCs has Chinese are also contributing to a marked conditions for ‘lift-off’ resulted in China becoming the third most improvement in business management skills. active R&D hub after the US and UK. In a survey by the Thomson Group and EIU back in The number of registered patents has 2006 of 165 senior managers, 48% of increased from 22,588 in 1990 to 352,000 in respondents declared that China will be the 2007. As a consequence, the contribution of key market for future R&D activity over the the R&D sector to the total economy has risen coming three years, compared to 24% for to nearly 1.5% in 2007 compared with less India, 22% for the USA and 21% for Europe. than 1% 10 years ago. Further strong growth is Demand Drivers Benefactors Market Hotspots Drivers Beijing MNCS Shanghai R&D Activities Guangzhou New Set up and Expansion Dalian BPO Activities Shenzhen Chengdu Regional Headquarters Xian Local Companies Hangzhou Corporate Expansion and Cost Suzhou New Set up and Expansion Nanjing Reduction Jinan Tianjin Industry Positioning Chongqing Wuhan New Business Park Occupiers Qingdao BPO activities include IT Services, HR, Customer Services, Operations (e.g. Investment, Legal), Training, Financial and Accounting, Procurement ©2008 Jones Lang LaSalle. All rights reserved
  • 6. World Winning Cities • China Business Parks • June 2008 • 6 Initially five cities were authorized as BPO bases in November 2006 – namely Dalian, Chengdu, Shanghai, Shenzhen and Xian. These five cities were subsequently joined by another six cities in December 2006 – Beijing, Hangzhou, Jinan, Nanjing, Tianjin and Wuhan. A further three cities have recently been announced – Changsha, Guangzhou and Hefei. Other financial support has also been introduced through a USD 1.3 billion Chinese-Singaporean private equity fund, which will provide easy financing for hi-tech companies in these cities. The government’s proactive encouragement of BPO activities, together with MNCs’ ongoing global pursuit of cost-effective locations has resulted in very strong expansion in the BPO sector, growing even faster than India (which accounts for almost for 60% of the global BPO market). According to joint research by McKinsey and EDS (a leading global technology services company), the BPO sector in China will see annual growth of almost 30% with a turnover of USD 18 billion by 2010, growing to USD 56 billion by 2015. High infrastructure investment (20% of China’s total investment is on infrastructure compared to only 6% in India), the high quality labour supply, competitive costs and strong government support Growth in BPO Activities rivalling India have all laid a solid foundation for the future growth in BPO activities in China. As a result, the country is expected to win market share from India. The government aims Business Process Outsourcing (including IT Services, HR, Customer Services, Operations, e.g. both to attract global China has already succeeded in developing BPO Investment, Legal, Training, Financial and activities targeted at Japan, which accounts for knowledge based Accounting, Procurement), a primary user of 70% of current business. For example, HP has set business park space, is actively being targeted as industries, as well as up a call centre in Dalian to tap into its local part of the central government’s plan to move the language skills to service the Japanese market, foster the organic economy up the value chain. The government while IBM have announced plans to increase its aims both to attract global knowledge based growth of companies Japanese back office operations from 2000 to industries, as well as foster the organic growth of 3,000 people by end 2008. NEC moved 90% of its that already have companies that already have operations in China. BPO business from Japan to China early 2007. Their specific objectives have been to: operations in China The expansion of foreign BPO companies has • Establish 10 competitive BPO bases across helped cultivate growth in local BPO service China during the 11th 5YP providers. Neusoft, the China market leader in • Double BPO export volumes between 2005 and BPO business ranks 25th globally (according to 2010 IAOP); the company employs more than 10,000 • Win BPO business from 100 leading global firms people and provides BPO services to more than • Cultivate 1,000 BPO firms with global 30 MNCs in Shanghai, Beijing, Chengdu, Nanjing certifications and Shenyang. Isoftstone, another leading Chinese provider of IT outsourcing services has BPO bases designated by Ministry of Commerce aligned with Microsoft and will have over 3,000 staff in a business park location in North West December 2006 December 2007 - February 2008 November 2006 Beijing. Isoftstone is also aggressively looking for opportunities in Tier-II cities. Beijing Changsha (December 2007) Dalian Hangzhou Guangzhou (January 2008) Chengdu Jinan Hefei (February 2008) Shanghai Attracting Regional Headquarters Nanjing Shenzhen Tianjin Xian Regional headquarters of MNCs have gravitated to Wuhan both Beijing and Shanghai since the early 2000s when the municipal governments offered incentives Source: Ministry of Commerce ©2008 Jones Lang LaSalle. All rights reserved
  • 7. World Winning Cities • China Business Parks • June 2008 • 7 leading MNCs such as HP, GE, IBM, Sony, Dell, to attract high value foreign investment. At the Business Park Occupiers Toshiba, Microsoft, Oracle and Intel. In Shanghai, same time, large MNCs were actively moving their Zhangjiang Hi Tech Park is emerging as a resources and capital globally which translated Microsoft pharmaceutical hub, housing companies such as into a ‘HQ relocation wave’ of the 2000s. Microsoft is investing heavily in their expansion into China, Novartis, AZ, GSK and Roche. particularly in R&D activities. Rapid expansion is generating For example, Alcatel moved its Asia Pacific demand for larger buildings with a better image, good headquarter from Australia to Shanghai in 2000, transportation and proximity to local universities. Grade-A office The Next Wave of Business Park buildings in CBD locations no longer meet the needs of from where it manages 16 Asia Pacific markets Occupiers companies, and given its large space requirements, locating in and 22 subsidiaries, as well as R&D centres in the CBD would significantly increase their occupancy costs. China; HSBC moved its China headquarters from Microsoft is currently building a 119,000 sq m campus facility While the hi-tech industry in particular has driven Hong Kong to Lujiazui (located in the CBD) in for 6,000 employees in Zizhu Science Based Park in the the development of many of China’s current Shanghai in 2000; whilst Kodak relocated its Minhang District of Shanghai; Phase I with a total gross floor business parks, developers are looking to the regional headquarter to Shanghai from Hong Kong area of 38,000 sq m was opened in early 2008. Zizhu Science Based Park provides Microsoft with low-cost land, next wave of occupiers to shape the future to serve the whole Asia Pacific market in 2004. strong government support, access to rich human resources market. The financial services sector is expected and accommodation costs (including rents and property to increase its presence in business parks as the At a micro-level, local governments have been management fees), which are estimated to be 70% lower than in the CBD. sector matures. courting headquarter functions due to the twin benefits of tax revenue and profiling, which has In Beijing, Microsoft is aggressively expanding its R&D According to the Global Financial Services encouraged a shift into business park capacity. The company already has several research labs in West Beijing and is currently building a 101,000 sq m R&D Offshoring Report 2007 released by Deloitte in accommodation. It has been estimated that the centre in Zhongguancun (West Zone), due for completion by 2006, over 75% of major financial institutions in relocation of one manufacturing-based 2010. The new centre, which will be fully owned by Microsoft, the world had offshore operations compared to headquarters will stimulate the relocation of will consolidate all research functions in this facility. less than 10% back in 2001. This trend is more than 10 related service firms (Dept of In Guangzhou Science City, one of the city’s leading expected to accelerate over the next few years, Foreign Investment Administration, Ministry of business park areas, Microsoft (China) Industry Base and the report highlights that China is likely to be Commerce, PRC). occupies 300,000 sq m. When complete in October 2008, the industry base will include a Microsoft Technology Centre India’s principal offshoring competitor. for South China, an advanced software training centre, a business operations centre, as well as an international Corporate Expansion and Cost Such alluring prospects have translated into a software outsourcing industry base. Reduction quick response from Chinese cities. As a EMC forerunner, Shanghai set up China’s first financial BPO centre in Zhangjiang Hi-tech Park in 2006 EMC, a US Fortune 500 company which designs and builds Many domestic and international firms that have information infrastructure, has been rapidly expanding and the Shanghai municipal government aims to been active in China for several years are throughout China in recent years with huge investment in create a USD 3 billion financial BPO sector by recording exponential expansion in both turnover R&D and strategic acquisitions. The company’s Shanghai 2010. Dalian has successfully attracted Fidelity R&D centre is one of their fastest growing R&D centres in and number of employees, on the back of double- the world. Evolving from a small office in the Pudong District International, a leading provider of financial digit economic growth. However, rapid expansion of Shanghai, the R&D centre grew to over 3,900 sq m in just services, to launch its back-office operations in is also occurring at a time of rising cost of doing 4 years. As a result of the need to accommodate 200 new the city. It is also the first foreign fund recruits each year, EMC relocated to a larger 7,500 sq m business in China, and in an increasingly R&D centre in Shui On’s Knowledge and Innovation management group in China to set up back office competitive global market place, companies are Community in Yangpu District, north of the city centre. functions, reflecting the country’s rising power as actively seeking ways to reduce their cost base a financial outsourcing centre. by reducing real estate costs. In this context, decentralised business parks offer an attractive Industry Positioning alternative to CBD office space for cost conscious occupiers. In Shanghai, for example, the CBD v Business Park Industry Positioning Key Tenants decentralised rental differential has widened significantly in recent years, and rents in the CBD Dalian Software Park IT HP, GE, IBM, Sony, Dell, Toshiba are now three times the levels being paid in Microsoft, Oracle, Intel decentralised business parks. Zhangjiang Hi-tech Park Pharmaceuticals Novartis, AZ, GSK, Roche Business Park Rent vs. CBD Office Rents, Shanghai Industry Positioning 14.0 Rent RMB per sqm per day The Chinese government has established ‘industry guides’ for every business park which 12.0 identifies the type of industry that it can operate. 10.0 Puxi (CBD Area) As a result, business parks are creating strong industrial clusters where companies in a similar 8.0 industry are operating in close proximity, creating economies of scale and encouraging knowledge 6.0 Pudong (CBD Area) sharing. One of the best examples is Dalian 2.0 Business Parks Software Park developed by Software Park China, one of the largest business park developers 0.0 nationwide. The Dalian Software Park has 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 attracted nearly 400 hi- tech companies including Source: Jones Lang LaSalle, 2008 ©2008 Jones Lang LaSalle. All rights reserved
  • 8. World Winning Cities • China Business Parks • June 2008 • 8 We believe that these 15 cities will set the benchmark against which future business park performance and activity will be measured. Distribution of Business Park Stock Of the current estimated business park stock of approximately 17 million sq m in China over 60% is concentrated in four cities, each of which has a business park stock of over two million sq m: Shanghai has China’s largest stock of business park space at over three million sq m. The high concentration of MNCs in Shanghai has contributed to the emergence of back-office and R&D activities. Shanghai’s two most developed business parks, namely Caohejing Hi-tech Park and Zhangjiang Hi-tech Park are now amongst China’s most high profile business parks. The Geography of Business Parks Beijing is also one of China’s largest business park markets, with a stock of around three million sq m. Its business park market has grown on the back of the city’s R&D activities and university Jones Lang LaSalle has identified 15 cities across China where we infrastructure. Its premier business parks are Z- expect the business park market to grow strongly due to the Park and Tsinghua Science Park. combination of government policy, robust demand drivers, critical mass Dalian is China’s third largest business park of business park activity and the presence of high quality occupiers market, which has grown on the back of BPO activities. Dalian Software Park Phase I has been active for a decade and has become a premier hub for IT outsourcing. They comprise of 12 cities that have been identified as BPO hubs by central government, Guangzhou’s business park market first namely: Beijing, Dalian, Chengdu, Guangzhou, emerged in the Guangzhou Economic and Hangzhou, Jinan, Nanjing, Shanghai, Shenzhen, Technological Development District. Its Tianjin, Wuhan and Xian. estimated 2 million sq m stock positions Guangzhou as the fourth largest market after We have also added a further three cities to our Beijing, Shanghai and Dalian. analysis; cities that are also now appearing on the radar of business park occupiers and where The future supply pipeline indicates that the stock development suggests an active business park is expected to more than double by 2010 to close market emerging: Chongqing, Suzhou and to 38 million sq m. Whilst the four largest markets Qingdao. Business Park Stock Business Park Stock 2010 Business Park Stock 2008 Stock 2008 >2 million sq m Shanghai, Beijing, Dalian, Guangzhou 38.8% 40.3% 61.2% 59.7% 700,000-1 million sq m Suzhou, Nanjing, Chengdu, Tianjin Other Cities Other Cities Jinan, Hangzhou Shanghai, Beijing, Shanghai, Beijing, Dalian, Guangzhou Dalian, Guangzhou 500,000-700,000 sq m Shenzhen, Xian <500,000 sq m Qingdao, Chongqing, Wuhan Total Size: 17 million sq m (est) Total Size: 38 million sq m (est) Source: Jones Lang LaSalle. Updated as April 2008 ©2008 Jones Lang LaSalle. All rights reserved
  • 9. World Winning Cities • China Business Parks • June 2008 • 9 China Business Park Hotspots Prime Markets Shanghai Shanghai has been China’s market pioneer in the business park sector, with a development history of more than 10 years. The high concentration of MNCs in the city has directly contributed to the rapid expansion of back- offices and R&D centres in Shanghai’s business parks. Beijing • • Dalian • Tianjin Amongst the most well-known business park developments in Shanghai are: Caohejing Hi-tech Park, • Qingdao Zhangjiang Hi-tech Park, Knowledge and Innovation Jinan • Community, Jinqiao Export Processing Zone, Shibei Industrial Park and Zizhu Science Based Park. • Nanjing • Xian Infrastructure improvements have played a crucial role in Suzhou • the successful development of these parks and most are Hangzhou •• Shanghai built close to public transportation links. • Chengdu Wuhan • As China’s most mature real estate market, Shanghai’s • Chongqing business parks have witnessed every phase of the sector’s evolution and they provide a good illustration of how the business park landscape in China has changed in recent years. For example, Caohejing was originally a cluster of light industrial factories, but is now Guangzhou • Shenzhen • transforming into a modern business park with several high quality projects under construction. Current business park occupiers in Shanghai are mainly high-tech companies and company back-offices. Over the next few years, the bulk of new demand is expected to originate from companies that are aggressively planning to expand in the city. The demand for large space, the need for consolidation, combined with the limited choice and rising costs in the CBD are expected decentralisation trends are driving the market, to be the main drivers for corporate relocation to the Demand Dynamics city’s business parks. resulting in a complex occupier mix. In Tier II cities, government initiatives in mapping out a city’s Beijing City Headquarters R&D BPO economic focus are important drivers of demand. Shanghai High High High The business park sector in Beijing has emerged primarily We have reviewed future demand prospects on the back of the city's role as a major R&D hub supported Beijing High High High by the high concentration of university institutions. based on an assessment of a city’s potential in Dalian Low Low High terms of prospects for three main occupier Zhongguancun Technology Park (ZTP) is China’s largest Guangzhou High Medium High business park. It comprises a central park in Haidian activities - R&D, BPO and regional headquarters. District and 9 sub-parks featuring several different Shenzhen High Medium High industries. A number of notable high-tech MNCs have set up their global R&D centres in ZTP, such as Motorola, Hangzhou Medium High Medium Shanghai and Beijing China’s Prime Markets, Ericsson, Nokia and Siemens. Large local large firms have Xian both perform well across all demand activities, Medium High High also boosted business park demand – notably Sohu which occupies 13,000 sq m in Tsinghua Science Park in ZTP, indicating strong and robust demand for Chengdu High High High UFIDA which occupies around 180,000 sq m in Shangdi business park space. Robust occupier demand YongFang Base, and Lenovo with its Chinese Nanjing Medium Medium Medium headquarters and R&D centre opposite Z Park in Shangdi. in these cities is being supported by the rapid Suzhou Medium Low Medium expansion of R&D activities, growth in back- Other key business park areas include Electronic City Wuhan Low High Medium (digital, electronic, telecommunications etc.) and Beijing offices and the decentralisation of business Economic-Technological Development Area (high-tech and Tianjin Low Medium Medium activities from CBD locations. pharmaceutical industries). Emerging areas include Daxing Pharmaceutical Park (south of the city centre) and Jinan Low Medium Medium the airport precinct (Beijing Capital Airport) which is Chengdu, Xian, Hangzhou, Guangzhou and Qingdao Medium Medium Low growing quickly with substantial developments, such as Shenzhen also score well on demand drivers. the MAX business park in Tianzhu EDZ. The new light rail Chongqing Low Medium Low lines, due to be operational by 2015, will aid rapid transit Although Dalian is not especially strong in R&D movement between the airport precinct, BDA, Fengtai, or regional headquarter activities, its BPO sector Zhongguancun and Daxing. Source: Jones Lang LaSalle is renowned as the market leader in China, with End-user demand is strong with MNC occupiers seeking will continue to account for the majority of new 620 BPO firms employing 50,000. Labour large stand-alone properties both for purchase and lease. Local companies are generally looking to purchase development, some of the largest increases in shortages and increasing costs have properties and their requirements are small (typically 500- stock are expected to occur in Chengdu, Suzhou, constrained Dalian’s progress up the value 5,000 sq m stand-alone buildings in campus style business parks on the city fringes). Xian and Tianjin. chain, but we nonetheless believe that with strong performance in the BPO sector, Dalian The ongoing ‘greening of the city’ is pushing more manufacturing firms out of the city which are being will be continue to be the market leader in Strong Demand Dynamics replaced by higher value industry. As a result business entering the next wave of business park activity parks are witnessing rising demand particularly from the R&D, pharmaceuticals and hi-tech sectors. focused on financial services. The future demand potential for business park With the emergence of private developers and the entry of Tianjin and Qingdao that have largely developed space in each city is the result of a complex experienced developers such as Raycom, CapitaLand and Frasers, the Beijing business park market is expected to interaction between sector prospects at a macro from manufacturing bases have lagged the other grow quickly and the standard of accommodation and level, and the relationship between CBD and cities in terms of business park activity. However, amenities is expected to rise over the next 2-3 years. decentralised office space at a micro-level. In their governments are keen to catch up and are prime markets such as Shanghai and Beijing, aggressively setting out master plans. ©2008 Jones Lang LaSalle. All rights reserved
  • 10. World Winning Cities • China Business Parks • June 2008 • 10 Transitional Markets • Xian • Dalian Renowned as one of the premier education hubs in China, Xian is a city with rich human Dalian is China’s third largest business park market and has been a pioneer in business park resources and low labour costs. To leverage its inherent advantages, the Xian municipal development – its first business park project was completed in 1998. The market is mainly driven by government has targeted BPO as a key growth sector. A 400,000 sq m software park has BPO activities. Most of the back-offices in the city have been set up to cater for the requirements of the been built to cater for the needs of BPO businesses. The Xian Software Park is currently Japanese and South Korean markets. Now more than 2,000 Japanese firms have expanded their home to 20 BPO companies, which mainly provide back-office processing for industries such technical support centres into Dalian – including Panasonic, Sony, Hitachi and Toshiba. Total investment as IT, healthcare and financial services. Companies such as Oracle, SPSS, Sybase, from Japan reached USD 4.2 billion, which is roughly 10% of total Japanese investment in China. Neweggs, Infineon, NEC and Applied Materials are present in Xian Software Park. In addition, CompuPacific International (an American-Chinese outsourcer) has created a BPO and call Dalian Software Park, with a total floorspace of more than one million sq m has become one of the centre in a software park deal with New China Life Insurance. To tap into the booming market, most high profile BPO parks in China – five out of the top 10 global BPO providers located in the park. Xian Hi-tech Zone has invested USD 430 million to develop a large BPO base with total space BPO providers include IBM Global Services, Accenture, BearingPoint, NEC and HP. exceeding one million sq m. • Hangzhou The entrance of large developers such as Ascendas and Shui On Group are expected to improve market transparency and provide new high quality projects. In 2007, the Shui On Group and Dalian Yida Group launched Dalian Tiandi Software Hub (DTSH), a mixed-use project of 3.5 The business park market in Hangzhou has developed from the cluster of universities (similar million sq m with a 10 year development phase. • Guangzhou to that of Beijing). The Hi-tech Development Zone in Binjiang District (one of the university areas in Hangzhou) has traditionally hosted most business park projects. The Hangzhou Economic & Technological Development Zone in north east Hangzhou is emerging as a new business park location. The market in Guangzhou first evolved in the 1980s from the manufacturing base of Guangzhou Development District (GDD). Today GDD includes several comprehensive business park areas – Singapore Science Park, developed jointly by Ascendas and Hangzhou Economic notably Tianhe Software Park, Haizhu and Panyu areas and Guangzhou Science City. The city’s two Development Area Administration, is located in Xiasha satellite town. With a total GFA of million sq m stock positions Guangzhou as the fourth largest market after Beijing, Shanghai and Dalian. 430,000 sq m, the park is expected to host several hundred IT companies and up to 50,000 industry professionals when completed in five to eight years. The main business park areas all have a high concentration of quality occupiers. For example, Microsoft (China) Industry Base occupies 300,000 sq m in Guangzhou Science City; the industry Alibaba, which was founded in Hangzhou, announced the development of its Chinese base includes a Microsoft Technology Centre for South China, an advanced software training headquarters, to be located in Binjiang Hi-tech Development Zone with a total site area of centre, a business operations centre as well as an international software outsourcing industry base. 59,000 sq m and employing 9,000 staff when completed in 2009. Huawei Technologies, a Intel’s International Data Security Solution Centre has committed to a 70,000 sq m development in leading Chinese telecom equipment provider, has built a global research and development Guangzhou Hi-tech District, providing accommodation for 6,000 employees. centre in Hangzhou with a total area of 250,000 sq m. • Nanjing In order to attract more companies in secondary and tertiary industries, GDD is offering incentives of up to USD 2.7 million to companies who set up their headquarters in the District. We expect that government incentives and industry synergies will underpin the strong growth of Nanjing Jiangning Science Park and Nanjing Hi-tech Park provide most of the high quality Guangzhou’s business park market. • Shenzhen business park space in the city. Centrally managed, large-scale business park projects did not appear in the city until 2005 and rents are relatively low at around USD 50 per sq m pa, compared to USD 157 per sq m pa in Shanghai. Major tenants include Nobel, Samsung and Honeywell. The business park market in Shenzhen emerged in the late 1990’s, anchored by the Satyam, the fourth largest IT company in India, attracted by Nanjing’s skilled labour force and establishment of the 11.5 sq km Shenzhen Hi-tech industry Park (SHIP). Located in SHIP, the competitive costs, has signed an agreement with Nanjing Hi-tech Park to set up a global delivery 600,000 sq m Vision (Shenzhen) Business Park (VSBP) is considered to be the highest quality campus (GDC). It will be the Satyam's largest development facility outside of India. The Nanjing business park project in the city. facility will include areas devoted to development and training as well as a convention centre. Owned by Frasers Property (a joint venture between Fraser & Neave and Ascendas), VSBP has Nanjing’s municipal government is very keen to develop a niche BPO market in the city been developed in three phases. Phase I (23,500 sq m) and phase II (121,300 sq m) came targeting the North American market. Aggressive investment in infrastructure and residential online in 2001 and 2006 respectively, while phase III (with a total investment exceeding USD 20 accommodation is expected to support growth in the business park sector. 8million) was started in H2 2007. More than 30 well-known high-tech firms occupy space in • Suzhou VSBP, including Huawei, Zhongxing, Lenovo, Microsoft, TCL, Philips and Epson. As a result of strong demand, the vacancy rate has fallen to 10%. The developers’ ambition is to transform VSBP into a ‘World Class R&D Centre’. • Chengdu Suzhou SIP and Suzhou New District have been the dominant players in the high tech office market to date. Supply is expected to grow significantly in the coming years with the opening up of new areas, such as the Wuzhong and XiangCheng Districits. Yangtze River Business Park and SISPAPK Phase 5 with a combined GFA of 1.7 million sq m will provide The business park sector in Chengdu emerged in 2000, when the government built a number of the majority of future supply. office buildings in its industrial zones to attract small high-tech companies. From 2004, supply increased significantly due to the government’s initiative to support the IT industry. Most business park occupiers come from companies who have set up manufacturing bases in Suzhou, including tenants such as Cisco, Oracle, Canon, Philips and Asus. The city will The high-tech office market in Chengdu currently totals around 750,000 sq m, with tenants continue to benefit from spill over from neighbouring Shanghai. However, rising wages and a mainly comprising international high tech companies. For example, Tianfu Software Park, shortage of skilled labour have put pressure on business park development in the city. Hero developed by Chengdu Hi-tech Investment Company (a government investment company) has Mindmine’s (India’s largest BPO training organisation) recent arrival in Suzhou should help to successfully attracted IBM, Nokia, Synnex and NEC, with average occupancy reaching around alleviate the problem. The new training centre in Suzhou Industrial Park aims to provide 5,000 1,000 sq m. For example, Nokia occupies 10,500 sq m in Tianfu Software Park and Accenture senior BPO professionals over the next 3 years, which will be a key factor in Suzhou’s ability plans to occupy 4,000 sq m in Tianfu Software Park Phase II by mid 2008. to attract more BPO firms. Chengdu’s large talent pool (with annual graduates reaching 105,000 compared to 110,000 in Shanghai), strong government support and industrial clustering of software, IC and telecommunications firms, continue to attract companies such as Flextronics, French Ubisoft, and Kingdee. The business park stock is expected to rise to well over one million sq m by 2010. ©2008 Jones Lang LaSalle. All rights reserved
  • 11. World Winning Cities • China Business Parks • June 2008 • 11 First Mover Advantage Markets Locations • Tianjin There is not yet an established business park market in Tianjin. Most business park space is randomly located in the Huayuan and TEDA areas – Huayuan is the most developed area with two 400,000sq m phases completed and another 600,000 sq m scheduled for future development. The situation is gradually changing as central and local government support increases. Several high quality projects are in the pipeline – Tianjin Binhai Service Outsource Industrial Park Phase 1 in TEDA (developed by Software Park China) will contribute 100,000 sq m of high quality space in 2008, while local residential developer Tianjin Xinhua Investment Group will develop 200,000 sq m in 2008. Despite the late start, Tianjin’s municipal government has very aggressive plans to win new business. The value of the BPO sector is anticipated to reach USD 4 billion by 2010 and the municipal government plans to allocate USD 6.8 million every year from 2007 until 2010 to fund talent training programmes relating to the BPO sector. It is likely that Tianjin will be a future star in the business park sector as the high concentration of MNCs in the city will contribute to the development of back-office and R&D functions. • Wuhan Wuhan is renowned as the ‘Optical Valley of China’ with its intensive research activities. Microsoft, IBM, Bearingpoint, Accenture, NTT and some domestic outsourcing companies, such as Beyondsoft, iSoftStone, and KMsoft have established their bases in the city. Infosys, India’s largest outsourcing company, will move into Optical Valley in 2008. EDS, one of the world’s largest IT outsourcing service providers, has built a global service centre in Wuhan Optical Valley Park. Despite high quality tenants, the size of the business park market is relatively small as most tenants occupy around 100-300 sq m. To differentiate from other cities, Wuhan is repositioning itself as ‘China's Delivery Centre of Outsourcing Services’, mainly focusing on subcontracting. Beijing • • Dalian For example, EDS’s GSC in Wuhan will take subcontracted services from Shanghai, in addition to • taking orders directly from Europe and North America. • Chongqing Tianjin Jinan • • Qingdao In Chongqing, there are two industrial parks focusing on the IT and electronics industries, namely Xiyong Microelectronics Park and New Hi-Tech Park. These parks are characterised by suburban • Nanjing • Xian settings, lower-density buildings and are in close proximity to major transport links. Large Suzhou • international high-tech firms such as HP, ProMOS Technologies as well as renowned domestic Hangzhou • • companies such as Kingdee Software have either leased or bought office and R&D space in these Shanghai two business parks. • Wuhan • • Qingdao Chengdu • Chongqing The business park market in Qingdao has a relatively short development history of only 2-3 years. Qingdao Software Park is the main provider of high quality space with Phase I providing 260,000 sq m. Phase II will be developed in five buildings totalling 115,000 sqm. Several high quality tenants have been active in the market such as Microsoft, Resource Pro Guangzhou • Shenzhen (US), Softbrain (Japan),Trial (Japan) and Interpark (Korea). The Qingdao government is very • ambitious and has allocated a 10 sq km land area in Aoshan (located in Jimo District) to cater for the software industry. However, land in this area has been designated for commercial use rather than industrial use. • Jinan The business park market in Jinan emerged relatively early (in 1997) when the municipal government provided support to the hi-tech industry. Intellectual Property (IP) protection has been a key factor in the development of Jinan’s business park market, and has enabled Jinan to become the second largest IP base in China after Chengdu. The city’s IP protection record has attracted some 500 top enterprises such as Microsoft, Oracle, LG, Panasonic, Suzuki, NEC, Texas Instruments and Sanyo. Currently, Jinan Hi-tech Industrial Development Zone and Qilu Software Park provide most of the high quality business park space in the city. ©2008 Jones Lang LaSalle. All rights reserved
  • 12. World Winning Cities • China Business Parks • June 2008 • 12 Opportunities and Risks - Where to Develop and Invest? Business park activity and investment risk have both been assessed in order to position each of the 15 cities on a market potential v risk continuum. A Business Park Activity Index has been created to quantify market potential and is based on a combined score of current and future supply and demand prospects. An Investment Risk Index has been created on the basis of real estate transparency, legal systems, government familiarity, market penetration, leasing risk and land price/availability price increases. These cities will be the primary Three groups of cities have been identified, each focus of developer and investor interest over the of which offers different business park short to medium term. opportunities and characteristics for occupiers, investors and developers. We believe that this Cities classification will set the benchmark for real This group comprises Shanghai and Beijing, estate players to assess market opportunities which have both been pioneers in the business over the next decade. park sector in terms of the amount and quality of space, and the high concentration of major Prime Markets market players. Players such as Goodman, Shui On and CapitaLand have been active in the Characteristics market for several years. The healthy market fundamentals have also attracted interest from Cities in this group score well in terms of market those locally based companies traditionally size, industry clusters and strength of future involved in residential and commercial sectors. demand. Their improving transparency reflects the growing activity of international players, which has led to intense competition and land Transitional Markets Characteristics Niche Markets Targeted Cities in the group have good demand prospects, and business park activity is relatively IT / Financial Outsourcing targeted on the Japanese and Korean markets Dalian high due to aggressive government promotion IT/ Financial/Logistics/Medical Outsourcing Chengdu and spill-over effects from maturing markets. Financial/Logistics Outsourcing Guangzhou Investment risks are modest as land prices IT/Financial BPO/Animation Industry/Telecom Services Hangzhou remain relatively low and the markets are IT Outsourcing targeted on the US market Nanjing becoming more transparent. Additionally, local governments have developed a good IT/Financial/Logistics Outsourcing targeted on US and European markets Shenzhen understanding of the business park concept. Animation/Logistics Outsourcing and Back Offices Suzhou These cities are poised for lift off, and are IT Outsourcing/Data Centres/Financial BPO targeted on the Japanese market Xian attracting strong interest from international and domestic players. Source: Jones Lang LaSalle. Updated as April 2008 ©2008 Jones Lang LaSalle. All rights reserved
  • 13. World Winning Cities • China Business Parks • June 2008 • 13 Investment Strategies Types of Investors/Developers Opportunities Risks Prime Markets • New entrants • Most transparent market • Strong competition for B-Grade product • Established players • Most high quality stock • Yield compression • Risk averse • Robust demand • Difficult to acquire land Transitional Markets • In the market for a while and looking for expansion • Expanding high quality stock • Relatively high vacancy • Improving market transparency and • Increasingly land and labour cost government familiarity First Mover • Opportunistic investors • Easy access to land • Limited demand Advantage Markets • Mostly locally based developers • Low cost • Lack of master planning • Requires higher yields • Less competition • Few investment grade exist • Generous government incentives • Poor infrastructure • Difficulty attracting and retaining skilled labour Source: Jones Lang LaSalle Cities have aggressive expansion plans (but are not always clear on the business park concept) and Dalian, Guangzhou, Chengdu, Hangzhou, Xian, in order to attract high quality tenants and well- Nanjing, Shenzhen and Suzhou are gradually known developers, they are offering generous catching up with prime markets in terms of the incentives for new entrants. These cities offer quality of business parks projects and future ‘first-mover-advantages’, with lower land prices master planning. These cities are developing and less competitive environments. their niche markets to differentiate themselves from the prime markets. Their local Cities governments are aggressively targeting experienced developers in order to improve the Business parks in Chongqing, Tianjin, Qingdao, quality of projects. Wuhan and Jinan are evolving from their manufacturing bases. They have a strong appetite for business park activity. We expect First Mover Advantage Markets these cities will quickly catch up on the back of high MNC activity. We believe that Tianjin offers Characteristics the best potential to develop as a robust business park market, due to strong government This group of cities currently has lower levels of support and presence of MNCs. business park activity, but the local governments Shanghai and Beijing offer the lowest risk profile. They have a well established business park sector and easily identifiable large-scale, centrally managed business park projects, which are well supported and clearly understood by their respective municipal governments ©2008 Jones Lang LaSalle. All rights reserved
  • 14. World Winning Cities • China Business Parks • June 2008 • 14 Industrial Land Prices - Government Minimum Posting Land Price City USD/sq m RMB/sq m 103 720 Shanghai 103 720 Beijing 86 600 Shenzhen Guangzhou 86 600 69 480 Hangzhou 69 480 Chengdu 69 480 Dalian 69 480 Wuhan 55 384 Xian 48 336 Jinan Understanding Risks 41 288 Nanjing 69/24 480/168 Qingdao 69/48 480/336 Chongqing and Hangzhou have a variety of associated Opportunities for investors and developers are 69/48 480/336 Suzhou risks. Guangzhou, Chengdu and Suzhou have extensive across all 15 cities, from prime markets 55/48 384/336 Tianjin so far seen limited penetration by international through to transitional and first-mover advantage players. Xian lags behind its peer cities in terms markets. However, understanding a market’s risk Source: Ministry of Land and Resources (MLR) of real estate market transparency. Nanjing and The land price relates to the main business parks profile will help to define the nature of the clusters. All the prices are subject to public auction Hangzhou have been successful at winning new business opportunity in each city. We have companies, but the typical size of occupation is assessed risk on the basis of real estate Government Familiarity Index small at an average of only 300-500 sq m. transparency, legal systems, government familiarity, market penetration, leasing risk and Highest land price/availability. First Mover Advantage Markets Shanghai, Beijing, Dalian, Xian Shenzhen, Chengdu Medium Prime Markets First mover advantage markets, in general, have Suzhou, Guangzhou, Wuhan lower quality stock and more limited demand Hangzhou, Nanjing, Tianjin, Qingdao potential. Each municipal government has very Lowest Shanghai and Beijing offer the lowest risk profile. aggressive plans to attract business park They have a well established business park sector Jinan, Chongqing activity; however, a lack of familiarity with the and easily identifiable large-scale, centrally Source: Jones Lang LaSalle Research business park concept is often the biggest issue managed business park projects, which are well Government Familiarisation relates to both Master Planning and Facilitation for these markets. Jinan for example, where the supported and clearly understood by their Qilu Software Park has been in existence for a respective municipal governments. Although decade, has been less successful in attracting offering the lowest risks, both cities face large MNCs due to the lack of government competitive risks associated with rising land prices Opportunities for facilitation. The difficulty in retaining skilled and labour costs. Shanghai for example, has seen investors and labour has also become a key issue in these transacted industrial land prices soar to over USD markets. Wuhan, renowned as one of the main 320 per sq m, double that of cities such as developers are education bases in China, has recently been Hangzhou and Suzhou, and almost four times extensive across all 15 slated for the difficulties in attracting and higher than in Qingdao and XianFurther increases retaining IT professionals. in land prices in Shanghai are anticipated due to cities, from prime land supply shortages and increasing demand markets through to from existing and new occupiers Watch List transitional and first- Transitional Markets mover advantage As well as the 15 hotspots identified in our analysis, we are also keeping a watching brief markets on a further three cities for signs of future Transitional markets have a higher risk profile than potential. Changsha and Hefei have both prime markets, and currently fall short in terms of recently been approved as national BPO bases market transparency, market penetration and by the Ministry of Commerce. Wuxi is also leasing risk. Dalian is facing the specific challenge starting to show evidence of business park of leasing risk, as it relies heavily on the BPO activity – the Wuxi municipal government has sector and has witnessed a slow-down in leasing been proactively promoting the city as a activity in newly completed projects. business park location and is attracting the interest of developers such as TecPark Other transitional markets such as Guangzhou, Development. Shenzhen, Suzhou, Chengdu, Xian, Nanjing ©2008 Jones Lang LaSalle. All rights reserved
  • 15. World Winning Cities • China Business Parks • June 2008 • 15 Development and Investment Trends Development Market Active Real Estate Players As business parks in China have evolved from Developers Locations Active Target Cities industrial zones, local governments have Ascendas Nanjing, Hangzhou, Dalian, Xian Cities across China traditionally been the largest land owners, Goodman Shanghai, Beijing Shanghai, Beijing managers and developers of business park space. Local governments have gained Frasers Property Beijing, Shenzhen n/a development expertise and management skills Shui On Shanghai, Dalian Other Tier II cities from external investors, and have successfully CapitaLand Shanghai, Beijing n/a generated stable income streams rather than Software Park China Dalian, Suzhou, Wuhan, Tianjin Guangzhou, Shenzhen, Chongqing, Chengdu relying on fees from one-off land transactions. Hangzhou, Xian, Beijing, Shanghai, Nanjing (subsidiary of the Yida Group) However, the dominance of local governments in Raycom Beijing n/a the development process has reduced market (Real Estate arm of Legend Holdings) transparency. TecPark Development Tianjin, Wuxi Central, West China Source: Jones Lang LaSalle. Updated as April 2008 The recent liberalisation of the land transferring system has triggered growth in private industrial business park sector. Its first project in Beijing - The recent property developers. Most domestic developers Raycom InfoTech Park, a 328,000 sq m liberalisation of the usually have backgrounds in office or residential development - has proved to be very successful, development, and so far there are few dedicated with occupancy rates reaching 90% in early land transferring domestic business parks developers. International 2008. Key tenants include Intel, AMD, Synopsys system has triggered developers, whilst often having significant industrial and Thomson. and business park development experience, have growth in private preferred to partner with local governments or TecPark Development industrial property domestic developers that are familiar with local TecPark Development was incorporated in 2007 market conditions and regulations. and aims to be the leading IT park developer and developers operator in China. With Isoftstone and Office Depot as its anchor tenants, TecPark is aggressively Key Players looking for opportunities in Tier II cities. They plan to move into central-west Chinain 2009. Their The most active Chinese business park developer current projects are in Tianjin and Wuxi. is Software Park China, who developed Dalian Software Park. Ascendas is the most active international player, having had substantial experience in creating best-in-class business parks across Asia. The significant opportunities offered by the business park market are also attracting large developers such as Shui On and CapitaLand. Chinese Business Park Developers Software Park China Software Park China, a subsidiary of the Yida Group and one of the few private sector business park developers in China, has emerged as a market leader. Dalian Software Park, developed by Software Park China, has achieved an exceptional performance over its 10 year development period, and is now a role model for the sector. The successful model has been replicated in developments in Suzhou, Wuhan and Tianjin. The company’s close relationship with local governments, local market knowledge and high-quality projects have provided Software Park China with a competitive advantage in the market. Raycom The real estate arm of Legend Holdings has increasingly been an active market player in the ©2008 Jones Lang LaSalle. All rights reserved
  • 16. World Winning Cities • China Business Parks • June 2008 • 16 Most international developers are typically quite cautious towards business park development, requiring evidence of robust demand and/or existing pre-commitments in proven locations Foreign Business Park Developers which Goodman now provides ongoing development management services. The success Ascendas of Shanghai Business Park has encouraged Ascendas, a leading provider of business space expansion of Goodman’s business park portfolio solutions in Asia, is widely recognized for its high in China, primarily targeted on Tier I cities. quality projects across Asia including Singapore Science Park; International Tech Park (Bangalore, Frasers Property India) and Carmelray Industrial Park (Laguna, Frasers Property is a Hong Kong listed property Philippines). Since its entry into China back in developer, with Frasers & Neave and Ascendas 1995, Ascendas has developed a number of as its two main stakeholders. Frasers have business parks projects across four Tier II cities - developed two high profile business parks in Nanjing (Ascendas Ihub), Hangzhou (Singapore- China - Vision (Shenzhen) Business Park (VSBP), Hangzhou Science & Technology Park), Dalian a 600,000 sq m project located in Shenzhen Hi- (Dalian Ascendas IT Park) and Xian (Ascendas tech industry Park (SHIP) and Vision International Innovation Hub). Ascendas are currently targeting Centre (VIC) Beijing, located in Tsinghua Science Tier II cities in order to secure market position in Park, a 40,000 sq m project developed through a these growth markets. joint venture with Beijing Tsinghua Science Park. In July 2007, Ascendas established two China Large Commercial Developers funds amounting to S$ 700 million. These funds targeting the business park sector aim to leverage Ascendas’ knowledge of the China real estate market based on over a decade of experience in developing and managing quality Shui On business space. Shui On, which has successfully developed its ‘Xintiandi Project’ across five Chinese cities, is Goodman also focusing on business park development. Its Goodman, which through their acquisition of Knowledge and Innovation Community (KIC) Arlington Securities and Akeler Holdings in 2005 / project in Shanghai, of which Phase I was 2006 has established a strong track record of completed in 2005, containing 23,000 sq m of business park development in Australia, the UK offices and about 100,000 sq m of residential and and mainland Europe. In 2000, Goodman broke service amenities. Modelled on a ‘live-work-play’ ground on their first business park project in China design concept, KIC is positioned as a more - Shanghai Business Park - a project jointly upscale innovation business park where strong developed with the Caohejing government and for linkages with local universities (such as Fudan, ©2008 Jones Lang LaSalle. All rights reserved
  • 17. World Winning Cities • China Business Parks • June 2008 • 17 also brings potentially higher returns through first Tongji and Shanghai University of Finance & Best Practice Business Parks mover advantage, and strategically positions Economics) are encouraging high-value activities. Ascendas to benefit from a rapidly expanding Shui On’s mixed-use development in Dalian will Shanghai Business Park, Caohejing market. Goodman appears to have adopted a be a landmark project when complete in 2017 – Shanghai Business Park is situated in Caohejing in the more cautious strategy of focusing on Shanghai the Dalian Tiandi Software Hub (DTSH) mimics its south west of Shanghai. It has been developed by and Beijing, and is participating through JVs with Caohejing Hi-Tech Park and Goodman. KIC project in Shanghai, and will incorporate both local governments. Those developers where residential, retail and office space. Shanghai Business Park contains a Philips Innovation business parks are not their main focus have Campus (a build-to-suit development) and several buildings for lease. These buildings are typically three to four storeys largely invested via mixed-use projects, such as CapitaLand high, with floor areas ranging from 8,000 to 13,000 sq m. Shui On’s KIC project and CapitaLand’s Zhabei CapitaLand, which has a large residential and Success Factors project. This reduces the leasing risks and commercial portfolio, has been aggressively • Location: Situated in a well developed industrial area operational risks of single use developments. investing in the business park sector in both • Excellent transportation: easy access to metro and bus lines • Large floor plate: > 2,000 sq m Shanghai and Beijing. In 2007, CapitaLand • Low building density: < 35% acquired 20,000 sq m of land within Multimedia • High green ratio: 40% Development Trends – Innovation Parks • Floor plate efficiency: > 70% Valley, a business park in the Zhabei District of • Exterior finishes: top quality building materials Developers are looking to move further up the Shanghai. To tap into the booming market, • Interior finish: raised floors • Management: international management value chain and get more return from their land. CapitaLand is teaming up with AustraLand The higher rents achieved on business parks, as Holdings to develop a mixed use project containing The quality of this project is rarely seen in the China market. opposed to other industrial uses, are luring We believe Shanghai Business Park is a true frontrunner business park space. In 2008, CapitaLand bought and will be mimicked by other projects. developers into business park development. Modern Service Complex Building A in Caohejing Zhangjiang Hi-tech Park, Shanghai This trend is taking shape in two ways. First, as (Shanghai). This 40,000 sq m office building will be service sector activity in Tier I cities matures, Zhangjiang Hi-Tech Park is one of China’s most well-known completed in mid 2008. In Beijing, CapitaLand and high profile business parks. The park was established in some developers are simply buying land in bought a building in Zhongguancun Technology 1992 and is located in Pudong New District in Shanghai. It is areas that were traditionally manufacturing- Park, occupied by IBM. divided into several functional sub-areas: Technical Innovation Zone, High-Tech Industry Zone, Scientific Research and oriented and developing them into business Education Zone and Residential Zone. parks. Secondly, innovation parks are being Developers Strategies Buildings in Zhangjiang High-Tech Park vary from standard created by developers who are leasing office-style buildings such as the German Centre to ‘business government-owned buildings, refurbishing them Most international developers are typically quite villa’ buildings such as those in International Office Garden. Currently, business villas and mid-rise office buildings are the and then re-leasing them to higher profile cautious towards business park development, mainstream in Zhangjiang High-Tech Park. The one notable tenants. As the market for more generic hi-tech requiring evidence of robust demand and/or exception is Zhangjiang Mansion, which is a high-rise building. business park accommodation becomes existing pre-commitments in proven locations. Newer office-style buildings constructed since 2004 are more saturated, more developers will follow the lead Ascendas, however, are aiming for market often of equivalent quality to CBD office buildings. Low (two of Multimedia Valley Shanghai and begin to four storeys) to mid-rise office (five to ten storeys) leadership and are aggressively expanding across buildings generally have larger floor plates from 2,000 to targeting niche markets. Tier II cities. Whilst this carries associated risks, it 4,000 sq m. Business villas are mainly targeted at small to mid-sized companies that are seeking stand-alone buildings to set up their regional headquarters; they are very popular with local companies that can use the buildings for client entertainment. Typical floor plates range from 600 to 1,000 sq m, with a GFA of each building of 1,000 to 3,000 sq m. Success Factors • Large land area • Well defined planning • Easy access to metro station and other infrastructure Eastward extension of metro is underway • Well-developed amenities • Residential cluster emerging nearby Tsinghua Science Park, Beijing (THSP) Located in Beijing's Zhongguancun area (China's ‘Silicon Valley’), Tsinghua Science Park is renowned as Beijing's premier business park project. The park was developed by Tsinghua Science Park, a company supported by the government (Beijing Zhongguancun Science Development and Beijing State-owned Management). To date, the 700,000 sq m Tsinghua Science Park has successfully attracted more than 200 high-quality tenants. These include: Microsoft, which occupy 20,000 sq m; Sun Microsystems with 4,000 sq m; EMC with 1,400 sq m and other renowned tenants such as P&G, Google and Broadcom. With strong demand for space in THSP, rents of 5- 7 RMB /sq m/day (USD 260-365/ sq m pa) have been recorded and have set a new benchmark for high quality business park projects in Beijing. Success Factors • Access to a skilled labour force – many universities and research institutions are located in the Zhongguancun area • Easy access to Beijing’s ring road and Xizhimen metro station and other amenities • Strong government support ©2008 Jones Lang LaSalle. All rights reserved
  • 18. World Winning Cities • China Business Parks • June 2008 • 18 Investment Market New Policy at a Glance April 2007- Industrial Land under Strong demand, but limited activity ‘SOHO’ style units are being offered for sale as Public Bidding, Auction individual buildings. This option provides investors with a quick cash flow to exit the Business parks are attracting increasing Notice of the Ministry of Land and Resources and the market. international investor interest due to strong Ministry of Supervision on the Relevant Issues Concerning the Implementation of the Assignment System of Industrial competition and tighter regulations in the Sale of an entire business park Land by Means of Public Bidding, Auction or ‘Hanging out commercial sector, and given the strong a Shingle’ issued in April 2007. project to another investor underlying demand from MNCs for decentralised The notice prescribes that: This results in the original investor realising 100% office buildings. GE, Blackstone, Morgan • Industrial land shall be assigned by means of public of the project, and is often the preferred strategy Stanley, Goldman Sachs and Ping An Insurance bidding, auction and ‘hanging out a shingle’ for opportunistic investors who rely heavily on have all expressed interest in the business parks • In the light of land evaluation results, industrial policies and the land market situation, the floor price of an capital value appreciation. This is an attractive sector, primarily focused on the Tier I cities. assignment shall be determined by a collective decision option in today’s market where rapid value The floor price shall not be lower than the minimum rates appreciation often exceeds developers’ However, with relatively few projects meeting publicized by the state expectations. international investment standards, there are very Implications few examples of actual transactions. LIM bought Placing a business park into a fund First Shanghai Business Parks in the Minhang Concerns that the price of industrial land may rise rapidly have been hovering over developers since the new land This option is seen as an optimal strategy for core District, and this transaction has been seen as policy was announced. Before the notice, industrial land investors that are intending to hold a project to the only case so far of institutional investment. prices were generally based on negotiation between generate steady cash flows. Some core investors developers and local governments. Land costs were opaque and often very low, and occasionally even zero. Whilst the have expressed an interest in this type of exit Potential Market Exit Options policy is resulting in higher land costs for developers in the strategy over the longer term. short term, the new policy will benefit investors over the longer term run as it enhances market transparency. Converting an asset into a REIT International investors in China have several May 2007- Restraints on Direct options in terms of their future exit strategies: This option is not currently available in China, but Foreign Investment in the Real is expected to emerge in the near future, and is Strata-title Estate Sector likely to be attractive to local developers who are Strata-title is still the most prevalent exit option in seeking options to refinance. Government the market due to the strong end-user demand regulations suggest Tianjin may host the first In May, 2007, the Chinese Ministry of Commerce (MOFCOM) and the State Administration of Foreign and value appreciation expectations. Most new REIT experiment in China. Exchange (SAFE) jointly issued a new notice titled Notices Governing Further Strengthening and Regulating Approvals and Supervision of Direct Foreign Investment in Real Estate Sector (Circular 50) to further implement the Opinions Governing the Market Access and Administration of Foreign Investment in Chinese Real Estate Market (Circular 171), issued in July 2006. According to Circular 171 and the later Circular 50: • Foreign investors must establish foreign-invested enterprises (FIEs) to invest in Chinese real estate development or operations. An established FIE must obtain approval from the authorities if it intends to expand business into real estate • A foreign-invested real estate enterprise (FIRE) with an investment of no less than RMB 10 million (USD 1.4 million) must have registered capital of no less than 50% of its total investment • If a FIRE fails to fully pay the registered capital, or fails to obtain the State-Owned Land Use Certificate, or fails to make the project development capital to reach 35% of the total project investment, it will not be able to obtain domestic or overseas loans, and the settlement of its foreign exchange loans will not be approved • Foreign investors are required to obtain land-use rights or building ownership before they apply to set up a FIRE development company in China • Local developers cannot distinguish themselves as foreign enterprises by setting up offshore parent companies, or by way of round-trip investment Implications Circular 171 and Circular 50 convey the intention of the Chinese government to control foreign investment in China’s real estate market. However, It is unlikely that foreign investment in real estate will slow down as a result of this policy, although new entrants will meet greater challenges in acquiring Chinese real estate. ©2008 Jones Lang LaSalle. All rights reserved
  • 19. World Winning Cities • China Business Parks • June 2008 • 19 Final Observations Business Parks - Definition The business park sector is now attracting both domestic For the purposes of this publication, we define business park accommodation on international developers and investors, and this trend is likely to the basis of the following criteria: continue with improving market transparency and with more high INDUSTRY POSITIONING • The park focuses on specific industries quality projects coming on the market. The strong competition/tighter TARGET SECTORS regulations in commercial property will focus attention on the • R&D, BPO, Headquarters, Call Centres, opportunities in the business park sector Back-Offices, Financial Services Centres LOCATION • Located within an industrial zone • Located in fringe CBD locations which Looking forward, we are confident that more Although the fundamental looks good, there are have gone through a gentrification business park hotspots will emerge as inevitable risks which need to be factored into process from older factory buildings into experienced developers and investors any assessment of business park futures in high-tech/business park type space penetrate further into China. Although China. The market dominated is by government BUILDING FEATURES investors are currently adopting a cautious initiatives, and whilst this will serve to boost the • Normally low-rise, with floor plates approach due to the limited amount of sector, it could equally create market distortions. between 2,000 and 4,000 sq m • Special standards (floor loading, power international standard space on the market and Moreover, municipal governments’ ambition of supply, A/C system, server room) the opaque business environment, they are developing huge quantities of space in the • Lower plot ratio universally confident about growth prospects future may lead to over supply due to the lack of • Normally ‘bare shell’ over the next five years. sound planning and promotion. LAND USE RIGHTS • Industrial, mixed-use, educational I am confident in the Chinese There is huge potential in the TAX INCENTIVES market. The quality of building business park sector in China, • Favourable policies and tax incentives is improving and will continue to given the central government’s according to industry positioning improve. The participation of ambitions to upgrade its value ‘Industry Positioning’ is considered the international players in the chain to more value added most important feature. If a project fulfils four out of the six features, they are market who have experience in sectors such as R&D. With more defined as a business park. low-density, high quality MNCs setting up R&D centres in Source: Jones Lang LaSalle buildings will re-enforce the China, combined with the market in the future. improving research capability of domestic Chinese firms, the future demand of business parks Colin Clark, Project Delivery Director, Goodman should not be underestimated. However, sustainability will be a main issue in the business park sector in the future. Chan Wei Siang, V.P, Head of Business Development, Ascendas China ©2008 Jones Lang LaSalle. All rights reserved
  • 20. June 2008 Real value in a changing world Asia Pacific Contacts BEIJING SHANGHAI 4/F, West Wing Office 25/F, Tower 2, Plaza 66, SINGAPORE For a copy of the full report on China China World Trade Center 1366 Nanjing Road (West) 9 Raffles Place Business Parks and for more 1 Jianguomenwai Avenue Jing An District #39-00 Republic Plaza information on how Jones Lang LaSalle Beijing 100004 Shanghai 200040 Singapore 048619 can assist you in this rapidly evolving Tel: +86 10 5922 1300 Tel: +86 21 6393 3333 Tel: + 65 6220 3888 market, please contact: Fax: +86 10 6505 1330 Fax: +86 21 6393 3080 Fax: + 65 6438 3360 CHENGDU SHENZHEN Jileen Loo www.joneslanglasalle.com.sg Head of Business Parks China Room 05, 12/F, Tower 1 Units 3807-09 Jones Lang LaSalle (Shanghai) Plaza Central Excellence Times Square Building Americas Tel: + 86 21 6133 5339 9 Shuncheng Dajie Yitian Road, Futian District, email: Jileen.Loo@ap.jll.com Chengdu 610016 Shenzhen 518048 Tel: +86 28 6633 3666 Tel: + 86 755 2399 6138 CHICAGO Fax: +86 28 8665 1021 Fax: + 86 755 2399 5138 Contributors 200 East Randolph Drive GUANGZHOU TAIPEI Chicago IL 60601 Stuart Ross Tel: + 1 312 782 5800 Unit 5902-3 CITIC Plaza 20F-1 Taipei 101 Tower Fax: + 1 312 782 4339 Head of Industrial China 233 Tianhe Bei Road No. 7, Xinyi Road Section 5 www.joneslanglasalle.com Jones Lang LaSalle (Shanghai) Guangzhou 510613 Taipei 11049 Tel: + 86 21 6133 5757 Tel: + 86 20 3891 1238 Taiwan email: Stuart.Ross@ap.jll.com Fax: + 86 20 3891 2864 Tel: +886 2 8758 9898 EMEA Fax: +886 2 8758 9899 HONG KONG Tammy Tang TIANJIN LONDON Head of Consultancy, Industrial China 28/F, One Pacific Place Jones Lang LaSalle (Shanghai) 88 Queensway Room 3509 22 Hanover Square Tel: + 86 21 6133 5344 Hong Kong The Exchange Tower 1 London W1A 2BN email: Tammy.Tang@ap.jll.com Tel: +852 2846 5000 No.189 Nanjing Road Tel: + 44 20 7493 6040 Fax: +852 2845 9117 Tianjin 300051 Fax: + 44 20 7408 0220 Kenny Ho Tel: +86 22 8319 2233 MACAU www.joneslanglasalle.co.uk Head of Research China Fax: +86 22 8319 2230 Jones Lang LaSalle (Shanghai) Unit D, 32/F Tel: + 86 21 6133 5450 Bank of China Building email: Kenny.Ho@ap.jll.com Avenida Doutor Mario Soares Tel: +853 718 822 Daniel Gardner Fax: +853 718 800 World Winning Cities Research China QINGDAO Jones Lang LaSalle (Shanghai) Tel: + 86 21 6133 5455 Suite 22A email: Daniel.Gardner@ap.jll.com Qingdao International Finance Centre Wayne Wang 59 HongKong Middle Road Assistant Manager Research Shinan District Jones Lang LaSalle (Shanghai) Qingdao 266071 Tel: + 86 21 6133 5444 Tel: + 86 532 8579 5800 email: Wayne.Wang@ap.jll.com Fax: + 86 532 8579 5801 Jeremy Kelly World Winning Cities Research Director Jones Lang LaSalle (London) Tel: + 44 20 3147 1199 email: Jeremy.Kelly@eu.jll.com We would also like to thank Yanyan Yang for her major contribution to the China Business Parks research programme COPYRIGHT © JONES LANG LASALLE IP, INC. 2008. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors.

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