 Business hots up for Chinese park sector
By Liu Jie (China Daily)
Updated: 2008-07-25 07:47  The business park sector in China is still in its infancy with a development history of little more than 10 years, yet the sector is now firmly poised for lift-off as the property market responds to the increasing requirements for high-quality decentralized business space, says a new report. International property consulting and management firm Jones Lang LaSalle conducted in-depth research into the sector recently and issued a report to review the future drivers of growth, identify the likely business park hot spots and assess how the development and investment landscape is likely to evolve over the next few years. According to the report, today's business parks are generally characterized by location at suburban areas and a broad mix of building types, which continue to be built in response to very different user requirements - from lower-specification semi-industrial units to high-quality headquarters office spaces that compete with the central business district (CBD) markets in terms of their quality and working environment. China's emerging business park sector offers robust demand fundamentals. Strengthening occupiers' demand for high-quality business park space in China is being underpinned by the expansion of research and development (R&D) activities of hi-tech and pharmaceuticals firms seeking high-specification space, by the rapid growth in business process outsourcing (BPO) industry, and by large multinationals' need for campus-style space outside higher-cost CBD locations. Demand is being further boosted by the government's strategy of moving the Chinese economy up the value chain and its policy of mapping out R&D and BPO clusters across the country. The real estate development market is now responding to the increasing demand for high-specification and low-cost space with larger floor space in decentralized locations. "The stock of business park space in China, which is estimated to stand currently at about 17 million sq m, is expected to more than double to around 38 million sq m by 2010. Over 60 percent of the current stock is located in the four cities of Shanghai, Beijing, Dalian and Guangzhou," said Jileen Loo, head of business park sector for Jones Lang LaSalle China. A number of other cities such as Chengdu, Suzhou, Xi'an and Tianjin are expected to witness a sharp increase in business park activity over the next few years. Jones Lang LaSalle's research has identified 15 business park hot spots across China, which it believes will be the focus of future business park activity over the next decade. Hot spots The property firm has grouped these cities into three market types, each group offering different opportunities and characteristics for occupiers, developers and investors. The first type is prime markets, including Beijing and Shanghai. The two municipalities account for more than a third of China's current business park stock and are host to China's most high-profile parks. Robust occupier demand in these cities is being supported by the rapid expansion of R&D activities, growth in back-offices and the decentralization of business activities from CBDs. Shanghai and Beijing are China's most transparent markets and are currently favored by established players and new market entrants such as Goodman, CapitaLand, Shui On and Frasers Property. The second type is transitional markets, for example, Dalian, Chengdu and Hangzhou. They are gradually catching up with the prime markets in terms of the quality of business parks projects. They are developing their niche markets to differentiate from the prime markets, particularly in BPO activities. They are targets for a number of international and domestic developers including Ascendas and Software Park China, whose participation will help to improve quality and transparency. The third type is the first-mover-advantage market such as Tianjin, Jinan and Chongqing. Those cities so far have lower levels of business park activity but their local governments have aggressive expansion plans and in order to 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 Tianjin offers the best potential to develop as a robust business park market due to strong government support and the presence of multinational companies," said Loo. Developers and investors 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 business park segment. "The credit crunch affecting the US market in 2008 is put ting a new spotlight on investment opportunities in China, but the long-term impact on the China businesses park investment market remains to be seen," said Stuart Ross, head of Industrial China for Jones Lang LaSalle. So far, there are very few dedicated domestic business park developers-Software Park China, which developed Dalian Software Park, is currently the most active. However, the chances offered by the business park market are starting to lure more local players, with companies such as Raycom and TecPark Development now entering the arena. So far, there are only a limited number of projects on the market that meet international investment standards, which together with the opaque business environment have constrained developers' and investors' expansion programs. Most investors are adopting a cautious approach, but they are confident about growth prospects over the next five years.  (China Daily 07/25/2008 page15) |
