Business parks poised for 'lift-off'

By Cao Qian  |   2008-6-24  |     NEWSPAPER EDITION

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CHINA'S fledging business park market, with a history of just over 10 years, is now firmly poised for a "lift-off" amid increasing demand for high quality decentralized business space.

Underpinned by the expansion of research and development activities of high-tech and pharmaceutical firms, a rapid growth in Business Process Outsourcing as well as more regional headquarters being set up by multinational corporations, the country's inventory of business park space is estimated to more than double by 2010, a latest industry research released by Jones Lang LaSalle concluded.

In a report released yesterday, the world's leading real estate services provider has identified 15 future business park hot spots across China as these are predicted to be the focus of future business park activity over the next decade.

"The stock of business park space in China, estimated at around 17 million square meters, will likely increase to around 38 million square meters by 2010, based on stock estimates in the 15 cities," said Jileen Loo, head of the business park sector for Jones Lang LaSalle China.

Among the existing stock, more than 60 percent are in four cities ?? Shanghai, Beijing, Dalian and Guangzhou ?? while other cities such as Chengdu, Suzhou, Xi'an and Tianjin are expected to see a sharp jump in business park activity over the coming few years, the research has found.

Three key demand drivers:

A global R&D hub

The Chinese government is actively encouraging R&D activities and has invested greatly to support education in an effort to leverage the capabilities of R&D. As a result, this has translated into an improvement of labor quality and innovation capacity and attracted a growing number of IT and pharmaceutical firms to establish their R&D centers in China.

Active BPO business

Business process outsourcing, a key user of business park space, has been targeted as part of the central government's plan to move the economy up the value chain. High infrastructure investment, high quality labor supply, competitive costs as well as strong government support have laid a solid foundation for the future growth of BPO activities.

Shift of regional headquarters to China

MNCs have moved their regional headquarters to Beijing and Shanghai since the early 2000s when the municipalities offered incentives to them. Local governments have also been courting headquarter functions, which has prompted a shift to business park accommodation.

15 hot spots identified in three groups:

Prime markets: Shanghai, Beijing

Scoring well in terms of market size, industry clusters and strength of future demand, the two cities will be the primary focus of developer and investor interest over the short-to-medium term. Both have been pioneers in the business park sector in terms of amount and space quality and have attracted a high concentration of major market players including Goodman, Shui On and CapitaLand.

However, while offering the lowest risk profile with a rather well established presence, the two cities are also facing competition from other cities due to rising land and labor costs.

Transitional markets: Dalian, Guangzhou, Chengdu, Hangzhou, Xi'an, Nanjing, Shenzhen, Suzhou

Catching up with the prime markets in terms of space quality and good demand prospects, business park activities in these cities are relatively high due to aggressive government promotion and spill-over effects from maturing markets. Poised for take-off, these cities are luring strong interest from domestic and overseas players.

Meanwhile, these markets have a higher risk profile and are usually less competitive in market transparency, market penetration and leasing prospects.

First-Mover-Advantage markets: Chongqing, Tianjin, Qingdao, Wuhan, Jinan

With rather lower level of business park activities, governments of these five cities have aggressive expansion plans and offer generous incentives to new entrants including the "first-mover-advantage."

A lack of familiarity with the business park concept, coupled with the difficulty in retaining skilled labor, is a common issue plaguing these markets.