A top Lotus Hill, a 10 meter-high Deng Xiaoping strides towards the future of Shenzhen. Beneath his fatherly, cast-iron gaze, the new Futian Central Business District rises perceptibly, day by day.
Dust clouds blow across freshly paved roads as yellow-jacketed workmen summon skyscrapers and five-star hotels from newly overturned earth. Big name clients like Ritz-Carlton and Kerry Center are setting up shop. As foreign banks gear up for business in China, Shenzhen’s CBD is welcoming them with open arms. From Lotus Hill, Deng surveys the sea change engulfing the city of his dreams.
On the rise
Shenzhen, a long, narrow border city stretching some 60 kilometers, is sandwiched between Hong Kong, mountains and sea. It has probably urbanized faster than any other city in the world, with its districts spread out like disparate city-states. Futian’s new CBD, planned over a decade ago, will now function as a unifying center to Shenzhen’s rapidly expanding boundary areas.
“It’s the gateway,” said property consultant CB Richard Ellis’s Shenzhen managing director Martin Chiu. “The entire area has been built according to plan. Strategically [and] centrally located with links to both Shenzhen and satellite development areas, it’s destined to become Shenzhen’s political, economic and logistic hub.”
Shenzhen’s CBD was originally conceived as a “gateway to China” during Deng’s Opening and Reform period in the early 1980s. The scale and momentum of the new CBD may make it something more like a cosmic wormhole.
A city of migrants
“Shenzhen’s a city of immigrants,” said Jones Lang LaSalle’s national director Michael Cheung. “It’s directly administered by Beijing and people here tend to think nationwide. Through Shenzhen’s CBD, companies can learn how to do business in China, and then expand throughout China.”
Shenzhen is now the fourth largest city in China, with the nation’s fastest-growing economy. Despite competition from Guangzhou’s Pearl River New City CBD, many industry watchers feel Shenzhen is in pole position.
“Guangzhou’s CBD will function as a Pearl River Delta regional headquarters, so its clients are more localized,” said Cheung. “Clients choose Shenzhen because they’re looking nationwide or for its access to Hong Kong.”
From Shenzhen’s inception, Luo Hu District, straddling the Kowloon-Canton Railroad (KCR), became the city’s prime business district as Hong Kong investment dollars began to flow through the frontier in the early 1980s. But Luo Hu’s prime space is filling up fast and its buildings are showing their years. Demand, meanwhile, continues to rise.
“CBD rental costs for grade A office space are about the same as Luo Hu,” Chiu said. “Slightly cheaper for now but climbing fast. However, the buildings are newer with more variety and higher quality specifications.”
Luo Hu, now the world’s busiest border crossing with thousands of Hong Kong residents commuting to work in Shenzhen daily, is under increasing pressure. Future transport links means the CBD will be linked directly to Hong Kong.
“Entire Hong Kong companies are already moving in,” Cheung said. “Although CBD rental prices are about the same as in Kowloon, it brings the strategic advantage of [being a] window on the mainland.”
The CBD is focused around the dramatic new “winged” municipal government center and the monolithic Shenzhen Exhibition and Conference Center. Five-star hotels, shopping centers and up-scale residences are also appearing in profusion.
“Everything is developing here,” Chiu said. “The residential buildings and malls bolster up the area. It will take time for the market to move in, maybe two to three years, but if you look closely, you can see all the pieces of the puzzle coming together.”
Nancy Gong, a Hong Kong investment bank director planning to move to the CBD echoed those sentiments.
“It’s clearly going to be Shenzhen’s economic and finance center. All the large foreign companies are shifting there, Standard Chartered is moving there. It’s the future; we can all see it,” she said.
Gong was based in Luo Hu’s financial district for the past five years, and at first, she was hesitant about moving.
“The CBD’s supporting facilities used to be really weak. Luo Hu is convenient, and it may even be slightly cheaper now,” she said. “But once we decided that we’re in it for the long run, it was the only choice.”
Of the two million square meters of grade A space projected to come online in Shenzhen over the next three years, the Futian CBD will account for a significant slice. Despite the large supply, the CBD’s prices remain robust, with rentals averaging US$14-19.50 (RMB 110-150) per square meter per month and sales US$2,340-3,250 (RMB 18,000-25,000) per square meter.
Demand for office property in the CBD is high: The nine CBD buildings that obtained sales permits last year sold more than 85% of units offered. Developers got 50-70% margins on their sales in 2006, which is about equivalent to the percentage gains they enjoyed from 2001 to 2005 in their other prime Shenzhen properties. Such impressive figures only back up the CBD’s claim of future exponential growth.
Futian in transition
Futian, once an empty expanse of land, is becoming a vortex of activity. There are plans to relocate Shenzhen’s Stock Exchange here from Luo Hu and to develop a banking and finance center.
During the Shenzhen property boom from 2001 to 2005, local developers sold units piecemeal to generate the cashflow to pay bank loans and continue building. Many developers were flush with cash when the central government introduced a capital gains tax on all properties bought and sold within the preceding two years.
The developers changed tack. Key developers like Kerry Group, Galaxy Group and the state-owned Duty-Free Corporation, are now promoting wholly-owned properties, which take advantage of local government incentives and subsidies for foreign companies.
“By maintaining both building and tenant quality and offering room for expansion, Shenzhen becomes increasingly attractive to large MNCs,” Chiu said. “[Developers] want to diversify their risk and ensure long-term fixed income.”
Land in the CBD is being snapped up. First movers are almost guaranteed both rental-value and overall property value appreciation. As Cheung noted, “The Shenzhen property developers who can survive the next few years will become key national players.”
The CBD is not only affecting Shenzhen’s property market, but it is helping the city’s economy mature in the long-term.
“Shenzhen used to be known solely for manufacturing and shipping, but the CBD is pulling up supporting industries and helping shift the focus to banking, finance and other value-added industries” Cheung said. “By attracting more talented people, it’s pushing up the GDP and the standard of living.”
In a nation transforming itself at a breathtaking pace, Shenzhen has been on the leading edge for nearly 30 years.
Now, property developers are again driving Shenzhen’s transformation from a manufacturing boomtown into a new kind of metropolis.
Waiting for Coco
Before Coco Park Shopping Center opened last fall, Futian executives had to go to noodle stands when they needed a bite. Those craving an ice-cold mocha had to jump in a cab to get one.
For Coco Park’s developer, Shenzhen-based Galaxy Group, launching the mall was no small feat. Coco, a bright, partially open-air shopping center in the CBD’s “Shopping Park” area, came hot on the heels of a development disaster.
In 2004, Galaxy Group won the contract for Coco Park’s second phase, after the first phase, developed by a state-owned company, flopped.
It learned from its predecesor’s mistakes, and retained ownership and management of the entire site. It also hired Hong Kong’s leading graphic designer, Alan Chan, to create a brand around it. Chan, inspired by the youthful exuberance of Shenzhen women, created Coco, a virtual girl who embodied the “Shenzhen Dream”.
With Coco’s mall set to take flight, Galaxy is upping the ante. Its Galaxy Development Center, timed for the 2008 Beijing Olympics, will be anchored by the Ritz-Carlton and, following a model succesfully employed elsewhere, this mixed-use property will marry the hotel with a high-end office tower and luxury mall.
“More and more people are living and working here,” Galaxy’s marketing director Wilson Shen said. “What do they require? We’re trying to give the people what they need.”