|The China50 will account for 12% of all global growth.|
Monday, 11th February 2013
Source : Jones Lang LaSalle
Jones Lang LaSalle highlights 50 secondary and tertiary cities across mainland China that offers substantial commercial real estate opportunities.
The China50 are being transformed at an unprecedented rate by the scale of building and by the progress of economic development. They are the cities that, we believe, will be hitting the headlines over the next decade.
The China50 represents a continental-sized market of global scale. It is an economy of US$2.9 trillion, comparable to Germany. If it were a single entity, it would rank as the world's fifth largest economy. Its cities are growing fast, outpacing the rest of China.
The China50 will account for 12% of all global growth over the next decade:
The pace of commercial real estate activity is remarkable. Over 80 million sq m of retail and nearly 30 million sq m of Grade A offices will be built in the China50's main cities over the next decade as they grow and modernise. This will bring much needed high-quality stock to the market.
A city hierarchy is taking shape. Since our last report in 2009, nine cities have separated themselves from the pack. We are calling them Tier 1.5 cities, and they comprise Chengdu, Chongqing, Dalian, Hangzhou, Nanjing, Shenyang, Suzhou, Tianjin and Wuhan. These cities are transitioning to maturity and are riding the wave of massive infrastructure and economic development.
Chengdu has emerged as the premier China50 real estate market; Chongqing, Shenyang and Tianjin have the strongest momentum; Wuhan and Xi'an offer good upside potential across multiple sectors.
The balance of growth has shifted from coastal to inland and northeast cities, highlighted not only by the impressive performances of Chengdu, Chongqing and Shenyang, but also by the evolution of cities in central China, such as Changsha, Zhengzhou and Hefei, into Tier 2 status.
Some coastal cities, particularly in the Pearl River Delta, have temporarily lost ground as they go through a restructuring process. But momentum will return as they move up the value chain.
The retail sector will provide the largest real estate opportunity in the China50, on the back of strong growth in the middle classes. International retailers are moving deep into the China50 to tap into favourable demographics. They are expanding rapidly into Tier 3 cities such as Harbin, Kunming and Guiyang.
Significant real estate opportunities exist in the logistics sector, where there is a severe under-provision of international grade stock - China's total Grade A stock is comparable only to that of Boston in the USA. Long-term prospects are boosted by improving transport infrastructure, retail growth and a shift inland of manufacturing.
Office market activity within the China50 will further concentrate into Tier 1.5 cities, where stock quality is improving and demand from domestic corporations will underpin growth. Chengdu will be the leading office market, while those of Chongqing, Tianjin, Wuhan and Xi'an are expected to grow in status.
Business park space is expected to expand robustly on the back of demand from new high-value priority industries that are aligned with the 12th Five-Year Plan, such as new IT, biotechnology and clean energy. Chongqing, Wuhan, Xi'an and Shenyang offer the best prospects for demand growth.
For international hotel operators, new opportunities are now emerging in Tier 3 cities, but operators will need to be more flexible and adaptive in order to compete effectively in these untested markets.
As volumes of tradable assets increase across the China50, institutional investor interest in commercial real estate will increase, but it may ebb and flow with risk appetite and liquidity. Their focus will be on the retail and logistics sectors that capture the dynamics of rapidly-growing consumer markets.
The China50 will continue to offer a compelling long-term growth story, but fears of excessive risk may lead to some caution in the property market over the short to medium term. They will not be immune from volatilities in the global economy, but importantly, its inland cities may prove to be more resilient than most, underpinned by the structural growth of China's domestic economy.
China50 Evolution Curve, 2012*
Source: Jones Lang LaSalle
* - City Evolution Curve
Cities are positioned on our City Evolution Curve based on a combination of Economic and Property Indicators:
- Economy – Economic size and growth, metropolitan population, infrastructure, openness, labour, education, wealth and business environment
- Property – Investment volumes, stock, developer activity, corporate concentration, retailer concentration, internationally branded hotels