China’s mid-tier cities, which include Chengdu, Wuhan, Tianjin and Hangzhou, will see strong demand for office space amid vibrant corporate activity and expansion of middle-class households, according to JLL, a real estate services firm.
“These cities are expected to consolidate their position as major office hubs,” Steven McCord, head of research at JLL in North China, told EJ Insight in a phone interview.
Compared with their lower-tier counterparts, the four cities are more likely to benefit from the country’s shift towards high-value activities and have higher potential for absorption of office and retail spaces, McCord said.
Chengdu is expected to maintain its position as the primary office hub for western China, while Wuhan is growing in status as the main office hub serving central China, according to JLL’s China60 Report.
Tianjin and Hangzhou will also solidify their office markets, benefiting from strong connectivity to Beijing and Shanghai respectively.
Referred to in the report as “tier 1.5″ cities, they are seen rapidly advancing from tier-2 category towards becoming premier metropolises.
Other mid-tier cities, such as Nanjing, Chongqing, Xian, Shenyang and Suzhou, also have the ingredients to support major office functions, the report said.
Over the past decade, grade A office stock in these cities has more than doubled every three years, raising concerns about oversupply. In fact, as much as half of grade A office spaces in these cities are currently vacant.
But McCord believes “tier 1.5 cities have considerable potential to absorb this excess space over the medium term”.
By 2025, these cities are projected to require 19 million square meters of grade A office space, which is nearly three times the existing stock of 7 million square meters, he said.
Currently, some 5 million square meters of stock have been occupied in these cities.
Lower-tier cities, on the other hand, have to scale back their reliance on construction as an engine of economic growth in order to tame the risk of oversupply, McCord said.
Last year, tier 1.5 and 2 cities accounted for 27 percent of the 27 million square meters of occupied office stock in the top 20 Chinese cities, according to JLL.
They are expected to represent 34 percent of the 79 million square meters of occupied office stock of the same pool by 2025.
City Evolution Curve
Since launching the China Cities Research Programme in 2006, JLL has built a framework – City Evolution Curve – to assess the relative positions of cities in their economic and property market evolution.
This year, it launched China60 report to show how China’s new economic, business and policy landscape is affecting the dynamics of real estate markets in the country’s top 60 secondary and tertiary cities.
Four tier 1 cities – Beijing, Shanghai, Guangzhou and Shenzhen – are included for benchmarking purposes, McCord said. However, international cities such as New York, London, Hong Kong and Singapore are off the charts as their economies are much more advanced.
At this stage, neither Beijing nor Shanghai can surpass Hong Kong and Singapore in terms of city competitiveness, he said. Shanghai will remain a financial hub of the mainland, complementing Hong Kong, which has the advantages of the rule of law and transparency.
Meanwhile, Guangzhou and Shenzhen are undergoing profound restructuring as well-established hubs of the Pearl River Delta mega city-region of 41 million people, according to the China60 report. The potency of this pair is heavily linked to their connectivity with Hong Kong, it said.
[Go to China60 report]
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