Park life

Business parks began growing within industrial zones in the late 1990s, as the government increasingly focused on the development of its high-tech sectors. Buildings in the parks can range from upscale headquarter offices that compete with the central business district market to high-specification R&D facilities for software development.

Stuart Ross, China industrial head at Jones Lang LaSalle, sat down with CHINA ECONOMIC REVIEW to talk about the growing presence of international developers in the business park industry.

Q: What investment trends have you seen in business parks over the years?
A: A lot of those companies that were initially set up [for manufacturing] have started establishing their back-office requirements or business process outsourcing (BPO) to business park locations. What you also see in a maturing market is increasing rental costs in prime commercial centers, so companies that are located in a few locations in prime commercial centers are seeing their costs increase dramatically over the last five years. Those companies that don’t necessarily need to be in the financial centers of towns start looking at the alternatives, which include business parks.

Q: How have the roles of private park developers evolved?
A: Even in second-tier cities, if the government can attract local or international developers, it would rather not do the development itself. For international developers, they have a history of developing these facilities in other parts of the world. Typically, they’re the first to come in and understand the requirements from the demand side. They’ve seen companies evolve with their technology and their changing use to facilities that they require. But what they really had up front was an understanding on the building side.

Q: For how long has this transition to private developers been taking place?
A: We first saw it about two years ago; it’s very recent. And now we have inquires almost every month, saying, “We’re interested in investing in business parks, what can do we do?” This comes from international developers or funds, or it comes from owner-occupiers who have access to cheap land because they are users themselves. So we see local IT companies that have land for their own use but can acquire a little bit more on the side.

Q: What kind of challenges do local business park developers face?
A: For Chinese developers, 100% of their backgrounds are in residential [property], and because of the tightened market, a lot of them are starting to look to industrial property. But industrial land is not sold to developers for them to make a real estate profit, but rather so that owner-occupiers will contribute taxes. The foreign developers coming in are usually very long-term and fund-based. They’re not so focused on real estate development profit up front as opposed to building assets with quality tenants that they can hold onto for a long period of time. Unless local developers have long-term strategy to set up a fund and long-term ownership, they’re going to struggle to compete.

Q: How have government measures to cool property markets affected business parks?
A: Those players that are already established and have a track record are going to dominate the landscape in these less certain times. Those players that weren’t set up six or 12 months ago are no longer going to be able to enter with ease. If there is a positive effect it’s having, it’s probably settling the market down and becoming more understandable to businesses. When the market is out of control, it puts everybody under pressure because they’re not sure of their future costs of locating in a particular area.

Q: What do you expect from rental prices in business parks in the near future?
A: Rents in business parks are coming from a low level, so we’re still forecasting growth. It’s mainly the first-tier markets that are driving growth in business park rents because they have  the high-end commercial clients. So in mature markets like Shenzhen, Guangzhou, Beijing and Shanghai there’s stronger potential for growth. In second- and third-tier cities the rental growths we don’t expect to be as strong.