Industry synergies

The term “business park” was originally imported into China from the West to describe low-rise, campus-style buildings in a suburban area, usually rented by high-tech or IT companies. Since then, the usage of the term in China has evolved.

While many business parks here do still conform to the Western definition, there is more to Chinese business parks than their construction style. Today, the term is best used to describe a real estate development targeting a particular industry. 

The development of business parks in China dates back to 1988, when the first high-tech zone was established by the government in Beijing to promote value-added industries and to improve the industry value chain.

Since then, business parks’ original association with the high-tech sector has loosened and they have grown to serve other classes of tenants. Today, business parks host a wide variety of sectors, such as automotive, pharmaceuticals, and business process outsourcing (BPO).

Business parks have also targeted the value-added functions of the industry chain by engaging R&D centers, corporate headquarters, back office operations, data centers and call centers, to name just a few. The architectural styles that business parks use have also diversified, the low-rise campus-style buildings being replaced by high-rise R&D buildings, stand-alone villas, incubators and creative spaces in refurbished factories.

Bucking the trend

The results have been positive. Compared with downtown offices, business parks’ relatively stable rental and take-up performance contradicts the traditional real estate mantra: location, location, location. At present it seems that a location in a central business district (CBD) is not as important as some might think.

While the downtown office market has been hit by flagging rental demand and high vacancy rates during the financial crisis, popular business parks like Zhangjiang, Caohejing and Zhongguancun have only experienced small declines (less than 10%) in rentals, and their respective vacancy rates have remained relatively stable.

Apart from the fact that many users are looking for long-term savings when they relocate to decentralized business parks, some are actually prepared to pay equivalent rents to downtown office areas to be in a business park. They justify their decision by the industry synergies business parks can offer. 

The advantages are improved proximity to human resources, industry information, government services and lower operating costs. In a complex industry cluster, firms may find that both their clients and their suppliers are located in the same park.

As importantly, the local governments responsible for running zones often still provide industry-specific incentives to certain sectors, including human resource subsidies, project funding and innovation rewards. These are seen as a means of promoting the industry cluster. 

Something special

Specialized space for functional uses can also be a major differentiator between business parks and office buildings. Features such as higher ceiling height and higher floor loading for R&D, flexible air-conditioning systems for IT users, backup power for data centers, and small stand-alone buildings for corporate headquarters are features that industry-specific business parks can offer but generic office buildings can’t. 

While state-owned developers are still major players in the market,  an increasing number of successful projects have been developed by international investors bringing knowledge in marketing and management. Capitaland’s RND building in Caohejing, Shui On’s KIC and Ascendas’ High-Tech Park all illustrate the success of international investment in the business park market.

New developments in business parks are growing bigger in project size as well. Lessons learned from older developments like poor transportation, homogenous product mix and low quality specifications have been resolved in the design and construction of new facilities.