China’s “One Belt, One Road” or OBOR promises to light a spark under China’s slowing economy, providing stimulus to places where it is needed and establishing logistics hubs around which new cities can grow. As this new demand supports the China office market, Beijing especially – at the core of where the grand policy is unfolding – is well-positioned to gain from greater depth in demand over the long term.

Repackaging historical overland trade routes along the Silk Road and maritime trade routes across the Indian Ocean, OBOR is more about the short-run connections, such as Kazakhstan to China, and Iran to India. In its rapid rise, China has accumulated tremendous experience building roads, high-speed rail and urban rail networks, and these skills are primed for export via design, engineering, and construction firms. As Chinese companies win contracts for overseas work via OBOR, there is opportunity for them to tap into higher-growth markets.

A home base for overseas expansion

To oversee foreign operations, China’s home-grown giants will require larger headquarters operations in China, from which to orchestrate their global expansion. Already home to a high density of decision-makers, at both the government and private level, it makes sense for Beijing to be the location of such activity, as a natural progression of existing operations in the city. We are approaching the dawn of the second wave of expansion where the growth of Chinese global headquarters shifts into overdrive: OBOR is destined to cement the role of China’s top cities as global nerve centres for the expansion of the new Chinese multinationals.

While the largest firms are generally known to be owner-occupiers, we will see more activity from smaller, nimbler firms, which tend to be more active in the leasing space. According to the Ministry of Commerce and HSBC, the private sector is becoming the main source of overseas direct investment (ODI) from China and this is also a stated policy goal. While state-owned firms more commonly develop space for self-use, the private sector takes a mixed approach and this will contribute to office leasing demand nationwide.

Keeping the wheels spinning

In 2011, Chinese firms ramped up their first wave of globalisation at a time when the country was going through a major economic stimulus and an office supply shortage. This “perfect storm” set into motion a two-year period of runaway rental growth in Beijing. While OBOR will not usher in another era of roaring rental growth, it will underpin demand and maintain a steady outlook for office rents.

We also need to keep in mind that China’s share of global ODI is only at 8-10% compared with 25% for the US, suggesting immense headroom for growth. In 2015, for the first time, Chinese companies invested more abroad – across diverse industries – than foreign companies invested in China. The reality now is that Chinese companies are mature enough to expand internationally, just as Japanese firms did in the 1970s. China’s slowing economy further makes investment in untapped markets abroad more attractive – and OBOR is a huge enabler in this. This is not capital flight, but the Chinese economy growing up.

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