Shanghai megalopolis

Like much of China, Shanghai is experiencing a property boom, despite the officially ordered slowdown in fixed-asset investment. For years, Shanghai has been marching from dock areas to megalopolis.

One need not leave Shanghai to see how new frontiers are emerging in both the office and residential markets. It all started, of course, with Pudong, which less than a decade ago was an inconceivable location for businesses. Now, some of the companies that moved to Pudong between 1998 and 2001 when rents were rock bottom are starting to move out of core Pudong areas, such as Lujiazui and back to Puxi or west-river, non-central Pudong to escape the high rents.

As for new and future development, the recent trends have called for filling in industrial land and building office developments in downtown Puxi, additional developments in Lujiazui and Hongqiao. Also, Hongkou's north Bund area is emerging as a business magnet. There are also strengthening trends towards conversion of old residential houses, factories and warehouses along the until-recently malodorous Suzhou Creek.

The biggest "wow!" however, is the emergence of Shanghai's business parks, having been hastened by the improving mass transit systems and roads to suburban areas and the sprawl of the city. Even university campuses and hospitals have been expanding in suburban areas, prompting the emergence of research clusters.

Also promising are the residential frontiers within the downtown area as well as on greenfield sites on the edge of the city. With nearly 800,000 residents to be relocated to make way for Expo 2010, it is hardly surprising that major new construction is underway. Estimates for 2005 are for 18m sq m of new housing. Much is made of the emergence of new satellite cities where new housing is linked to new employment, often with "Themed" new towns, such as Anting Motor City, the home of Shanghai's Formula-One race track as well as a thriving auto industry where a "holistic'' approach to development is being implemented.

Getting ready for a facelift
Meanwhile, the urban core is set for a makeover centered on the dozen or so conservation areas that were declared to preserve some of the city's architectural heritage. The main conservation areas include the French concession in Xuhui District, Yu Gardens in Huangpu District, Tilanqiao in Hongkou, People's Square and The Bund. The property there includes country mansions in Changning in the west of the city, townhouses, the grand old buildings on the riverfront, and Art Deco apartment blocks.

The thinking caps are still on as to how the makeovers will actually happen, as conservation does not fit into the normal Chinese development model of raze-and-build. The challenges of conservation, renovation and income construction are enormous with such vast areas of valuable real estate, the relocation of current residents and a range of complex planning issues such as the management of delicate renovation of pre-1949 buildings, demolition of illegal structures, change of use, sustainable management systems, and so on.

Further fill-in development of industrial land is taking place with a new frontier of the Gubei New Area, a popular mid-price housing development. Gubei Phase II comprises 57 hectares of land, of which 8.5 hectares are planned for green space within over 1m sq m of new construction.

For manufacturing businesses in Shanghai and the Yangtze River Delta, there are opportunities within the emerging megalopolis. Most important, for those considering their first manufacturing venture in China (or relocation) are the various tax incentives and land deals offered in different locations. These considerations, when coupled with the vast range of options now available within what is now a much tighter area, due to better infrastructure, will undoubtedly complicate decision-making.

Suzhou Industrial Park, Changzhou New District, Nanjing Economic and Technological Development Zone are just some of the major zones competing with the well-known industrial zones in Shanghai. When negotiating for land or floor space in an existing building, it is important to know that the zone creations are often motivated more by tax revenue than rent or land premiums, and this should affect buyers' strategy.

Puxi versus Pudong
Not so long ago the Shanghainese had a saying along the lines of "better a bed in Puxi than a house in Pudong" to express their desire to live in the part of Shanghai that is west of the Huangpu River. That now has been reversed to the extent that office rents in prime buildings in Pudong exceed those of Puxi while residential prices have equalized. Does this mean we will soon be hearing a 21st century version – better a bed in Pudong than a house in Nanjing?

Those considering the government's recent "Go West" campaign to encourage investment in the interior provinces should be reminded that "west" does not have to mean Urumqi or even Chengdu. For companies seeking to get out of central Shanghai and get better-quality space or to cash-in on lower rents, it might mean one of the business parks in the west of the city. Manufacturers looking west are finding that Nanjing is now just down the road rather than the half-day train journey it was a decade ago.

With greater choices and swifter journeys we can expect to see the emergence of industry clusters, as development theory suggests and which government policy supports. Along with greater intra-megalopolis competition, we can all hope for better quality and cheaper alternatives. Whatever, the Shanghai megalopolis is here to stay.

Sam Crispin is our regular real estate columnist and can be contacted at samcrispin@cpcproperty.com