William Fang is deputy general manager at Kaiyi Investment Consulting Hangzhou, a subsidiary of Kailong REI Project Investment Consulting, a Shanghai-based commercial real estate firm with US$730 million in assets in Shanghai, Beijing and Hangzhou. He is currently overseeing Kailong REI’s latest business park, the Binjiang Intelligence Port (BIP) in Hangzhou’s High Tech Zone. Fang has spent 15 years in the business. He spoke with CHINA ECONOMIC REVIEW about finding – and keeping – tenants, and the business process outsourcing (BPO) sector.
Q: How has the crisis affected Hangzhou’s commercial real estate market?
A: The recent financial crisis has had a considerable impact, of course, and Hangzhou is no exception. The vacancy rate of Grade A offices here is up almost three percentage points to 14% in the first quarter this year. Shanghai has been hit even harder. However, we have managed to maintain a stable tenant ratio in two ways. First, cost played a role, definitely. But you get the same quality in terms of facilities and services here. Hangzhou has one of the best infrastructures in place among Chinese cities. Second, and more specifically, we designed BIP for a high space efficiency ratio of 80% and created an open interior design that allows for flexibility in floor planning.
Q: How do you differentiate BIP from other business parks?
A: It’s not easy. We’ve already seen rapid growth in the Binjiang District and that has included market entry by new players. To compete, we concentrated on provisioning higher quality hardware to the facility, including fiber optics and broadband access. We also recruited international expertise to help us with asset management. BIP has received investment from our partner Carval, a US institutional investor that has acquired US$25 billion in assets through 3,600 transactions globally. That is a lot of experience. In addition, Insigma, our local partner in the project, is a fast-growing IT and electrical engineering firm with strong ties to the local high-tech community. This combination of international expertise and local knowledge enables us to serve both multinational corporations and local firms.
Q: What are your current tenants doing in the BIP?
A: In the first phase of the project our anchor tenants are Indian software giant Infosys and Chinese telecom heavyweight Huawei. Infosys is using this site as its China BPO center, which provides financial data processing, order management and client management services to its global clients. It is planning for its Hangzhou center to become one of the top three BPO companies in China before 2010. Huawei is using BIP as an R&D center. Since Huawei’s internal reorganization, the Hangzhou center has become an integrated R&D center which covers system design, software, hardware, engineering, algorithms and testing.
Q: What are the advantages of choosing Hangzhou for BPO over other first- and second-tier cities in China?
A: Hangzhou has a vibrant economy and is ahead of its peer cities in attracting foreign capital. It has a good reputation for being friendly to foreign investors. The municipal government has made the BPO sector a priority in its plans for future economic development, which helps us, and has issued preferential policies to boost the sector, which helps our tenants. Incentives in the Binjiang district are usually granted to new tenants, and they range from direct government subsidies to tax incentives, office rent assistance and apartment rent discounts. These advantages, together with its proximity to Shanghai and access to skilled labor, make Hangzhou highly competitive for conducting BPO business.
Q: In terms of labor, is there sufficient supply of local talent in Hangzhou to support BIP’s tenants?
A: Yes, there is an abundant supply of local talent available. Hangzhou is home to 36 universities, with a total of 390,000 enrolled college students. About 100,000 highly educated yet cost-competitive college graduates enter the talent pool annually. But it’s not just about the quantity produced; the quality of these graduates is also among the best in the country. Zhejiang University in particular has a top-notch reputation here.