Shang­hai of­fice space: stock and de­mand

China Daily (Canada) - - SHANGHAI - By WEI TIAN in Shang­hai weitian@chi­nadaily.com.cn

Mas­sive build­ing projects have be­come less wel­comed in Chi­nese cities in the wake of the coun­try’s slow­ing econ­omy and tight money sup­ply, but Shang­hai re­mains a mecca for commercial property de­vel­op­ers.

As more for­eign com­pa­nies move into the East China city to reach the ex­pand­ing Chi­nese mar­ket and a se­ries of pi­lot re­form poli­cies stim­u­late en­trepreneur­ship, there is an in­creas­ing de­mand for of­fice space.

Among many ma­jor projects is the Shang­hai Hongqiao Cen­tral Busi­ness District (CBD) tak­ing shape in a western sub­urb of the city. The project’s de­vel­op­ers see it as a ma­jor base camp for do­mes­tic and for­eign com­pa­nies, as well as a new growth en­gine for the city.

But con­cerns about the slow­ing GDP growth of the world’s sec­ond-largest econ­omy also have pro­duced ques­tions about the am­bi­tious project.

In a Fe­bru­ary re­port, Bri­tish real-es­tate re­search firm Knight Frank said that its sur­vey of de­vel­op­ers in the Hongqiao CBD showed con­struc­tion of its build­ings may be de­layed by up to 24 months be­yond the sched­uled time frame of late 2015.

The 16-page re­port also raised con­cerns about the qual­ity of the project and the mar­ket­ing strat­egy af­ter its com­ple­tion, cit­ing chal­lenges such as “tight­en­ing lend­ing pol­icy, more spec­i­fi­ca­tion re­stric­tions, ex­pected de­lays in in­ter­link­ing in­fra­struc­ture and many of the de­vel­op­ers’ limited ex­pe­ri­ence of build­ing mixed-use prop­er­ties”, the Wall Street Jour­nal re­ported.

In a doc­u­ment given to China Daily, of­fi­cials with the ad­min­is­tra­tive com­mit­tee of Hongqiao CBD ad­dressed con­cern about the com­ple­tion date: “The year of 2015 is only an es­ti­mated time for the Hongqiao CBD to com­plete ba­sic con­struc­tion. It’s not a fixed sched­ule, and does not ap­ply to all the build­ings.”

Ac­cord­ing to pub­lic data, the Hongqiao CBD cov­ers an area of 86 square kilo­me­ters, with a core area of 4.7 sq km. It in­cludes two ma­jor projects: the Hongqiao Com­pre­hen­sive Trans­port Hub — the world’s largest trans­port hub — and the Na­tional Ex­hi­bi­tion and Con­ven­tion Cen­ter.

The trans­port hub has been op­er­at­ing since 2010 and is one of the world’s busiest with an an­nual pas­sen­ger flow of 400 mil­lion, while the ex­hi­bi­tion and con­ven­tion cen­ter will hold its first ex­hi­bi­tion in Oc­to­ber.

“Hongqiao CBD is a large area com­pris­ing many build­ings. It’s not a res­i­den­tial project, so it’s im­pos­si­ble for all the build­ings to be com­pleted at the same time,” said an of­fi­cial who de­clined to be named. “There are still of­fices un­der con­struc­tion in Man­hat­tan and Lu­ji­azui, but we can­not say these districts are not com­plete.”

The first com­pa­nies will move into the of­fice build­ings in the sec­ond half of this year, ac­cord­ing to the of­fi­cial.

An­other con­cern raised by Knight Frank is that on top of nearly 1 mil­lion sqm of gradeA of­fice space in 2014-2016 of­fered by the Hongqiao CBD, there will be an additional 4 mil­lion sqm be­com­ing avail­able in the city, mak­ing it a chal­lenge for the Hongqiao CBD to at­tract ten­ants.

But a re­cent re­port by Jones Lang LaSalle (JLL) sug­gested that con­tin­ued rapid growth in the ser­vice sec­tor will ab­sorb the fu­ture sup­ply of of­fice space.

With its as­pi­ra­tion to be­come a global fi­nance and ship­ping cen­ter in 2020 and the ex­pan­sion of var­i­ous re­forms af­ter the launch of the China (Shang­hai) Free Trade Zone, JLL es­ti­mates that the de­mand for grade-A of­fice space will be edg­ing closer to the sup­ply, de­creas­ing the of­fice va­cancy rate of 15 per­cent to 10 per­cent in 2020, when both sup­ply and de­mand will be around 12 mil­lion sqm.

“We ex­pect a strong growth out­look for fi­nance, pro­fes­sional ser­vices, health­care and re­tail brands as well as for emerg­ing sec­tors and Chi­nese do­mes­tic en­ter­prises,” said Gra­ham Coutts, head of strate­gic con­sult­ing with JLL China.

The in­creas­ing size of the mid­dle class will also lead to ex­pan­sion in stores and of­fice op­er­a­tions. For ex­am­ple, Den­mark-based toy man­u­fac­turer Lego is mak­ing a strong play for the main­land’s in­creas­ingly af­flu­ent mid­dle class, aim­ing to build its Asian dis­tri­bu­tion cen­ter in Shang­hai fol­low­ing the re­cent con­struc­tion of a new fac­tory in Zhe­jiang prov­ince.

Liu Yingkui, di­rec­tor of Zhenro Group’s Hongqiao project, said FTZ in Pudong and Hongqiao CBD are two ma­jor growth ar­eas in Shang­hai’s commercial property mar­ket, but be­cause the Pudong mar­ket is ba­si­cally sat­u­rated, there is a great op­por­tu­nity for the Hongqiao CBD.

That is also shared by Knight Frank’s head of re­search in Shang­hai, Regina Yang.

“Hongqiao CBD’s un­der­ly­ing de­mand fun­da­men­tals and its prox­im­ity to the trans­port hub will make it an ap­peal­ing des­ti­na­tion for in­ter­na­tional and do­mes­tic firms seek­ing to do busi­ness in Shang­hai and the delta re­gion,” she said.

“In ad­di­tion, govern­ment poli­cies will ben­e­fit key in­dus­tries and help sus­tain de­mand over the next few years, calm­ing fears of a mar­ket over­sup­ply. The Hongqiao CBD shall fight the chal­lenges, grow un­der pres­sure and get ready for the take-off.”

Yang said that govern­ment poli­cies will ben­e­fit key in­dus­tries and help sus­tain de­mand over the next few years and calm fears of a mar­ket over­sup­ply.

“The Hongqiao CBD shall fight the chal­lenges, grow un­der pres­sure and get ready for the take-off,” she said.

GAO ERQIANG / CHINA DAILY

Of­fice tow­ers are start­ing to put pres­sure on his­toric neigh­bor­hoods like the Shiku­men area of Shang­hai, above.

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