China: Building for the futureJuly 31, 2017 / By
Following 30 years of rapid development, Beijing’s landscape, like many fast emerging cities, has buildings that have failed to stand up to the test of time. Yet others remain relevant and competitive 20 years on.
Building for the future
In order to remain as Grade A office buildings in Beijing, developers must build for the future to guard against premature obsolescence. Due to the speed at which the market is evolving, standards for new construction should exceed what is typical in the marketplace today.
Many structural features of a building are difficult to upgrade in the future, and therefore, are important to get right from the start.
For example, the average elevator and restroom provisions in post-2010 Grade A buildings are 20-30 per cent larger than those built pre-2010, according to the results of our most recent market survey. But some buildings stand out: China World Trade Center (CWTC) 1 and CWTC 2, completed decades ago, still offer competitive quality.
Source: JLL Research
Maintain in order to gain
Good maintenance always helps things last longer, but a generous annual capital expenditure budget is also required.
It is important to note that there is more to maintenance than keeping a clean space with working facilities: upgrading is essential along the way, as it is impossible to predict everything that will be needed for the future.
For example, personal computers were not yet the norm in the late 1980s, but now, the power capacity of offices has been adjusted to accommodate higher power consumption needs for each workstation.
Outperforming the market
Landlords who put more in tend get more out of their buildings, allowing them to maintain a leading position with rent levels in Beijing’s central business district over decades. Below, we show how CWTC 2 is a consistent top performer and outperforms 90 per cent of CBD buildings even today. Others have not fared so well: their rental performance has lagged or fallen behind with age.
Source: JLL Research
Wholly owned vs. strata-titled
While some of these observations seem fairly obvious, only a few buildings appear to have survived the test of time.
What are the challenges holding them back?
- Strata-titling: Only single-owned projects have the full flexibility required to keep up with the latest standards. If a building is built for strata-title sale to individual investors, less capital is invested in higher-quality building features with lengthy payback periods.
- Difficulty in consistent and centralised maintenance: After the building is sold to individuals, consistent and centralised maintenance is much more difficult. Some owners might use the space for office leasing, but others may use it for unintended purposes.
- Cost-cutting impacts maintenance and upgrades: It is easier for a single-owned building to make decisions regarding maintenance and upgrades. In many cases, maintenance is ignored to cut back on costs, and often the result is the lowest standard of maintenance or even no maintenance at all.
As new higher-quality office projects enter the market over the next 5-10 years, baseline building standards will further rise. To ensure their buildings last in the market, landlords need to plan for the future now – before it is too little, too late.
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