Cities throughout China are in various stages of developing new Central Business Districts (CBDs), following the example set by the development of Shanghai’s Lujiazui in Pudong. We are constantly being asked by investors and developers to assess the development potential of these new CBDs, most of which are expecting to see a supply influx in the next two to three years. As illustrated below, many cities will witness a sharp increase in Grade A office stock in the next three years as they go through a new construction boom.
Source: Jones Lang LaSalle Real Estate Intelligence Service
Such a rapid pace of expansion is very likely to result in a temporary oversupply situation. However, by looking at some successful new CBDs, Lujiazui in Shanghai, SIP in Suzhou and Zhengdong New Town in Zhengzhou to name a few, we can see that oversupply in the short-to-medium-term is far from a deciding factor in the long-term success of a new CBD, which might take over 15-20 years to be able to compete with a traditional CBD. So what is common among these successful new CBDs? What essentially made them become what they are today? We believe that it is continuous government support and dedication to these new CBDs through the whole development history that separates the winners from the losers. Successful new CBDs were prioritised areas for local governments to develop and as such enjoyed the most preferential policies and the largest government capital and resource allocation in their cities.
What we have often seen in many cities is that local governments make sound plans for new CBDs and then, after only a few years, shift their priorities to create other new CBDs, and this is mostly due to changes in leadership at the local level. A good example of this is Taihu Square in Wuxi. In the tenth five-year plan (2001-2005), Taihu Square in Nanchang District was designated as the only new CBD in Wuxi. However, starting with the 11th five-year period (2006-2010), Taihu New Town in Binhu District was named the new CBD of Wuxi and subsequently received the city’s priority for development. As a result, there was a significant slowdown in the development of Taihu Square in recent years with new projects being built at a very slow pace.
Generally speaking, there are many factors which drive a new CBD to be successful in the long run, including location, developer profile, infrastructure, accessibility, market forces, etc. In our opinion, the government’s long-term commitment to the development of a new CBD is one of the most important deciding factors for its long-term success.
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