Attractiveness of the new CBDs in Western China

May 2, 2014 / By  

In preparation for our first-quarter property market update, I recently visited a number of cities in western China. During these visits I was impressed to see that office demand in these new districts, namely the southern extension of the High Tech Zone in Xi’an, Jiangbeizui in Chongqing and Financial City in Chengdu, was expanding faster than I previously expected.

Many people have difficulty imagining that companies would relocate to these emerging districts where transport networks such as expressways and metro lines are still under-construction and many of the supporting facilities such as hotels and shopping malls are still incomplete. In fact, many large SOEs immediately took the opportunity to secure space for building their headquarters while it was readily available in the early stages of district development. Beside these pioneers, many strata-title buildings were also welcomed by local or other domestic companies which took the chance to acquire office premises for their own use. We now find that these new areas are becoming more popular and have taken note of the many companies that have moved there in recent quarters.

In Xi’an, the south extension of the High Tech Zone is seeing demand come from expansion and upgrading requirements. The office market has recently benefited from over-crowding in the business park sector and many local IT firms expanded into new office buildings instead.

In Chongqing, Jiangbeizui is the new CBD approved by the State Council as a national strategic financial centre and as a result, many SOEs and domestic MNCs have relocated their headquarters there. Most of the office occupiers are very large domestic banking groups and insurance companies and we see more and more of them making the area their headquarters.

Financial City is the district designated as the new CBD for Chengdu. Following the relocation of municipal government headquarters to Financial City in 2008, many SOEs and government-related companies moved their offices to the area as well. Meanwhile, it was noted that the new office buildings were well-liked by local small-and-medium enterprises (SMEs) and that these types of companies have become a major source of demand for office space in Financial City.

Looking ahead, I think the biggest challenge for these new areas is the upcoming new supply because the office stock in the aforementioned submarkets is expected to more than double in the next three years. Although, up until now, the new demand created by the organic growth of the economy has been absorbing office space on a continuous basis, the overwhelming amount of new supply will definitely increase the vacancy rate and put pressure on rents in the short-to-medium term. However, these new districts in western China were carefully planned by the government with a long-term view in order to ensure the economic growth of the cities concerned, so I believe the market will reach equilibrium once the scheduled supply has been completed.

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