Xi’an has several of the best universities in China and they consistently turn out an abundance of skilled labour. These graduates include many engineers which has, in turn, attracted many IT/high-tech giants, including IBM, ChinaSoft, Oracle, Emerson and Rockwell. Aided by government incentives for the high-tech industry, these companies have tended to locate in Xi’an’s business parks, the Xi’an High-Tech Zone in particular. But with that Zone now almost full, what is the likelihood of success for business park developments in emerging submarkets?

There is 1.5 million sqm of completed stock in Xi’an’s business park sector. Around 60% of total business park space is located in Xi’an High-Tech Zone, which was the first cluster in the city. In the past, the supply of business park space was mainly controlled by the government, because the provision of high quality but low rent space was regarded as a competitive advantage for attracting high-tech firms. After a decade of operation, almost all of the buildings in Xi’an High-Tech Zone are full. Those high-tech companies looking to expand often must temporarily turn to office buildings within High-Tech Zone in order to find space. Rents in the office buildings can be 50% higher than in the business park buildings and are typically missing some of the important technical specifications required by IT companies, such as increased electrical power and 24 hour chilled water for server rooms.

Recently, the government realised that the shortage of business park space would hinder the development of high-tech industries, so more land for business park use has been put on the market. The overall market will see supply of around 400,000 sqm of new business park space each year from 2014 to 2016.

Similar to other property sectors in the city, most of the new supply will come from emerging areas where the infrastructure and business support facilities are still under development. And this is where the challenge lies. In Xi’an High-Tech Zone, almost all of the business parks have achieved full occupancy levels, whereas the emerging sub-markets, such as Fengdong New Town and Fengxi New Town, have high vacancy rates across most of the business parks.

We see demand for business parks in emerging areas coming from a variety of sources: expansion requirements from companies in the established High-Tech Zone and from foreign newcomers attracted by government initiatives, as well as by the huge business potential in West China. With the extended capacity, Xi’an’s High Tech Zone and its business park sector will continue to flourish and further enhance Xi’an as the leading sophisticated manufacturing base in the region.

About the author
Frank Ma is the Head of Research for JLL in Chengdu.

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