Hangzhou, the birth place of the e-commerce titan Alibaba, has been fostering entrepreneurship and encouraging private sector growth. These initiatives have paid off handsomely, particularly in the office market as growth of its tertiary sector or services sector outshines Tier 1 cities such as Beijing and Shanghai.
The capital city of China’s eastern province of Zhejiang has been in the global spotlight since August, when it was chosen, in preference to Beijing and Shanghai, to host the G20 summit. Hosting the G20 has brought a variety of collateral benefits to the city, including increased media exposure, heightened popularity with tourists, as well as a wave of infrastructure improvements that connect the city’s neighborhoods and business districts.
All these advantages have helped to further build the city’s reputation as an innovation capital and a pioneer of China’s new economy.
In 2015, Hangzhou achieved real GDP growth of 10.2% while growth in the rest of China slipped to 6.9%. Within GDP, tertiary sector growth is the most meaningful indicator of office market demand, and a key contributor to GDP. JLL compared tertiary sector growth across China’s thirteen Tier 1 and 1.5 cities and found that Hangzhou’s tertiary GDP growth rate exceeded that of all the others, and notably was an average of 5 percentage points higher than Tier 1 cities like Beijing and Shanghai.
Figure 1: Tertiary GDP of Tier 1 and Tier 1.5 cities
Source: Local Bureau of Statistics
Hangzhou’s robust and growing service sector has helped it achieve the highest Grade A office rents among China’s Tier 1.5 cities, reaching RMB 139 (US$20.50) per sqm per month. A few top quality projects in the city’s traditional CBD can achieve rents as high as RMB 8-10 sqm per day, comparable to some Grade A projects in the Shanghai CBD.
Figure 2: Tier 1 and Tier 1.5 city rental performance
Source: JLL Research
Policies to support the service sector – particularly tech and financial services – will continue to stimulate Hangzhou’s economy and drive demand for its office space.
- Technology: Hangzhou’s tech scene is symbolized by Alibaba. This local startup has grown to occupy around 500,000 sqm of office space in the city today. Beyond Alibaba, local government initiatives have made Hangzhou a top destination for talent seeking carreer opportunities in China’s tech industry. Examples include subsidies for startups and a development on the city’s outskirts called ‘Dream Town’ that houses over 700 startups. Successful startups are likely to upgrade their office space, fueling demand for the city’s Grade A offices.
- Financial services: Hangzhou aims to leverage its strength in e-commerce and renowned support for private sector firms to grow its role as a financial hub for the Yangtze River Delta. The city’s government currently is focusing its efforts on the hedge fund and third-party payment sectors, and is setting up “fund towns” while giving support to companies planning IPOs.
Going forward, these policies will continue to stimulate real estate demand and will further strengthen Hangzhou’s reputation as one of China’s most progressive and innovative cities.
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