The future of office demand in China will rest not only on the state-owned sector and the foreign-invested sector, but increasingly domestic, private companies. Where will the new generation of these companies emerge from?
Inspiring millions
The Alibaba IPO in 2014 inspired millions of bright minds to start companies and ushered in a wave of followers looking to be the next Jack Ma. In China, e-commerce platforms, gig economy apps, and ridesharing are adopted at rates far faster than in the West, putting innovation on an accelerated timeline. China may not be an early adopter with new technologies, but adoption rates go straight up when technologies gain traction. Many are arguing that innovation in China is real: it’s not just around hardware, but also the processes, the packaging, the supply chains, and the integration with other platforms. Many start-ups begin in co-working space, incubators, and even apartments. As these firms grow in scale, their presence is poised to spill over into the broader office market to become a significant demand driver.
7 businesses registered per minute
The policy frameworks of recent years mark a renewed effort by the central government to encourage the formation of new, high-tech companies. By an official count, China has more than 1,000 investment agencies funding entrepreneurs in China, with a total investible capital of more than 57 billion US dollars. Some 115 university science parks and over 1,600 technology business incubators are said to be facilitating 80,000-plus enterprises and hiring 1.7 million employees in China. State media reported that seven businesses are registered every minute, based on 4.8 million company registrations in the 14 months leading to May 2015.
The spectrum of office demand
At the top of the size scale sit Alibaba, Tencent, and Baidu. While these firms are typically business park users due to their sheer size, the story of the next few years will be the rise of the mid-sized company: we can expect more of these firms to appear in the standard, high-rise Grade A market. This will likely happen as a process – whereby firms start in co-working space, expand into Grade B space, and ultimately end up in Grade A offices as their needs evolve.
From incubator to office tenant
For early-stage companies, the mass entrepreneurship drive is poised to deliver office demand on several fronts: through incubators, accelerators, co-working spaces, and “maker spaces”, all of which lease space from landlords to then sub-lease to individual tenants. These are all designed with small companies in mind who need maximum lease flexibility and growth flexibility over a short time horizon, even as short as a single day. There are even options for pre-incubators: Beijing’s “Startup Street” lets you take a table for the day for the price of a coffee.
Once companies reach a certain maturity threshold, they will be looking for a better place to call home – to provide comfortable, high-quality work environments for their employees, especially as attracting and retaining top talent takes on a new level of importance for their business.
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