"Hangzhou City Profile 2017" - · PDF fileThe Case for Hangzhou Hangzhou’s growth story symbolizes China’s ongoing transition from ... students study at 39 colleges and

China | Q1 2017

CITY PROFILE

Hangzhou

Hangzhou

2 Hangzhou City Profile 2017

Hangzhou City Profile 2017 3

The Case for Hangzhou

Hangzhou’s growth story symbolizes China’s ongoing transition from manufacturing to a technology and services-based economy. The city has leveraged a thriving services sector, strong tourism and financial industries, and a growing tech scene to become one of the most successful cases of a Chinese city transcending its old growth model and achieving ‘the Chinese dream’. JLL’s 2017 City Momentum Index ranked Hangzhou 26th out of 134 cities globally, joining the Top 30 alongside Tier 1 Chinese cities like Shanghai and Beijing.

The world’s 30 most dynamic cities

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Bangalore

Ho Chi Minh City

Silicon Valley

Shanghai

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Hanoi

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Nairobi

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Pune

New York

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Sydney

Paris

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Manila

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Hangzhou

Los Angeles

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Stockholm

Americas EMEA

Population Connectivity Technology and R&D Education Environment

Economic Output Corporate Activity Construction Real Estate Investment Property Prices

Our model combines 42 socio-economic and real estate indicators

Asia Pacific

Source: JLLSource: JLL City Momentum Index, 2017


• The strength of Hangzhou’s services sector as China transitions to a ‘new normal’ of slower but more sustainable growth. This drives strong demand for office space and adds momentum to the city’s real estate market.

• Hangzhou’s energetic private economy and start-up culture, which have spared it from many of the difficulties associated with reforming China’s vast state-owned sector.

• Hangzhou’s rise as a technology hub, catalyzed by the emergence and international expansion of Alibaba.

• A strong education system, good quality of life, and a robust economy have made Hangzhou a magnet for talent.

• Hosting events like the G20 Summit and Asian Games has brought new investment in Hangzhou’s infrastructure and public facilities.

• Hangzhou already is a tourism and leisure hub, and is increasing its focus on the MICE (meetings, incentives, conventions, and exhibitions) sector.

• A strategic location in the Yangtze River Delta, one of China’s most prosperous city clusters.

• Improving connectivity, driven by excellent expressways, a growing metro network, and China’s expanding high-speed rail system.

Hangzhou’s dynamism has a number of key drivers:


Globally, Hangzhou already is on its way to becoming a household name. Its international profile saw a major boost last year when it hosted leaders from around the world at the 2016 G20 Summit, and the city will have the limelight again when it hosts the Asian Games in 2022. In addition, the city’s name is virtually synonymous with Alibaba, founded there in 1999 and now one of the world’s largest technology firms.

Hangzhou’s strong economy leads us to be optimistic about its property market, despite considerable supply in some sectors. The office market benefits from strong demand from professional services and technology firms, with the Qianjiang New Town submarket receiving inceasing interest

SizePopulation (million, 2016) 9.2Urban Population (million, 2016) 7.0GDP (RMB billion, 2016) 1,105.0Tertiary GDP (RMB billion, 2016) 676.8GrowthPopulation (% pa, 2000-2016) 2.5%GDP Growth (% pa, 2000–2016, LCU) 13.9%InfrastructureAirport Passengers (millions person trips, 2016) 31.6Freight Traffic (million tons, 2016) 302OpennessUtilized FDI (US$ billion, 2016) 7.2Exports (RMB billion, 2016) 331.4WealthGDP/Capita (RMB, 2016) 121,394Urban Disposable Income per Capita per annum (RMB, 2016) 52,185Education and LabourHigher Education Institutions (2016) 39Total Enrollments ( 2016) 481,000Unemployment ( 2016) 1.7%Average Wage Rate per annum (RMB, 2014) 70,823

Economic Dashboard Table

from tenants. In the retail market, high incomes and rapidly growing retail sales are helping to keep vacancies low as the market digests a wave of new supply. The city’s modern logistics stock remains small compared to its neighbors, but retailers and e-commerce firms’ race to improve distribution efficiency is driving demand for more quality space. In the residential market, strong demand fundamentals and low inventories have left developers well-placed to withstand a policy-induced slowdown in sales. The city’s hotel industry is strengthening as the burgeoning economy attracts ever more tourists, business travelers, and MICE events.


City Overview

Hangzhou anchors the south west corner of the Yangtze River Delta (YRD), one of the richest and most developed regions in China. The city’s administrative area covers a total land area of 16,596 sq km (slightly larger than the US state of Connecticut), though less than a third is urbanized. The remainder consists of farmland as well as scenic mountains and lakes, some of which are famous throughout the country and add to the city’s tourism appeal.

Urban Hangzhou is focused on the city’s historic center between the renowned West Lake and the Qiantang River. Rapid development and a

growing population have led the city to expand outward in almost all directions, including to the foothills of the western mountains and to the southern side of the Qiantang River. The city now consists of nine urban districts as well as two rural counties and two county-level sub-cities located some distance from the urban center. These designations have been subject to revision as the core city’s urban edge continues to extend outward. For example, in early 2015 the (now former) county-level city of Fuyang was re-classified as Hangzhou’s ninth urban district.

Hangzhou also is the centerpiece of the ‘Hangzhou Metropolitan Area’, a regional-planning initiative that integrates the city’s development with that of other north Zhejiang cities Huzhou, Shaoxing, and Jiaxing. In 2015, the Metropolitan Area had a combined residential population of 21.5 million and a GDP of USD 310 billion, comparable to the GDP of South Africa.


Demographics and Labor Force

Hangzhou’s official residential population stood at approximately 9.2 million people in 2016. Official population figures can be misleading, however, as they lump city populations together with their rural hinterlands and county-level sub-cities. Independent estimates from the Economist Intelligence Unit (EIU) put the urban population of Hangzhou’s metro area at closer to 5.9 million, still making it one of the largest cities in the YRD after Shanghai. Hangzhou’s metro population grew by an average 120,000 people each year over 2011-2016, highlighting the city’s attractiveness to outside talent.

Approximately 46% of Hangzhou’s labor force is employed in the services sector, a far higher share than in more industrial-oriented YRD cities such as Suzhou and Wuxi. The city’s growing service workforce is supported by one of the YRD’s stronger higher education systems, where close to half a million students study at 39 colleges and universities, including the nationally renowned Zhejiang University. The same factors that make Hangzhou attractive to outside talent – thriving private sector, dynamic tech industry,

high quality of life - also give it a leg up on retaining promising graduates, combatting the brain drain that afflicts many of China’s other major college towns. One challenge is that Hangzhou workers’ rising wages mean it will need to continue diversifying its economy to stay competitive.

2015 Population, Yangtze River Delta (YRD) Cities

Source: Economist Intelligence Unit (EIU)


Economic Structure

Hangzhou is one of the largest and fastest-growing city economies in the YRD. In 2015, Hangzhou’s GDP exceeded RMB 1 trillion for the first time, becoming only the tenth city in China to do so. The city’s economic growth has maintained a strong pace in recent years even as the rest of the country has slowed down, illustrating the resilience of the Zhejiang capital’s tech-driven service economy as well as the strength of its private sector.

Surging service sectorHangzhou is the most services-driven economy in the YRD outside of Shanghai, with its tertiary share of GDP having surpassed that of Nanjing in 2015. Preliminary data indicate its tertiary sector surged to 61.2% of GDP in 2016. It is no exaggeration to say the service sector has become the main engine of Hangzhou’s economy: services accounted for 80% of GDP growth in 2016, 84% of fixed asset investment, and 78% of utilized foreign direct investment.

While Hangzhou may be most well-known for its tech sector, financial services also have emerged as one of the city’s key industries. While nearby Shanghai attracts national and MNC banks to set up regional headquarters, Hangzhou has become a destination for private banks, venture capital, and private equity firms seeking to capitalize on the city’s increasing entrepreneurialism and strategic location.

Tourism is another pillar of Hangzhou’s service economy, as the city leverages its scenic West Lake and other sights to draw tourists from around China and the world. Tourism revenue rose 16.9% y-o-y to reach RMB 257.2 billion in 2016. The 2016 G20 Summit prompted a comprehensive upgrade of Hangzhou’s infrastructure and tourism facilities, and the diplomatic event itself sharply raised the city’s profile on

2015 GDP, YRD Cities

2015 Economic Structure, YRD Cities

Source: CEIC

Source: CEIC


the international stage. Hangzhou will remain in the limelight as it prepares to host 2022 Asian Games, which are expected to boost its tourism industry still further.

Technology: Hangzhou’s Killer AppHangzhou is often called China’s “Capital of E-commerce,” and is perhaps best known as the birthplace of online retail titan Alibaba, now the world’s largest retail platform by gross merchandise volume. Alibaba has grown alongside – and arguably helped catalyze – the city’s broader technology and software sector, attracting waves of talent and spurring growth of a sprawling ecosystem of supporting businesses and startups. Hangzhou’s government supports this trend and has earned a strong reputation for offering tax-breaks, housing subsidies, and other support to high-tech firms and entrepreneurs. Leaders in Beijing have boosted the tech sector further by selecting Hangzhou for initiatives like China’s first Cross-border E-commerce Comprehensive Pilot Area, which launched in 2014 and contributed to huge growth in the city’s cross-border

a pilot city for using new-energy vehicles, and domestic carmakers BYD and FDG Electric Vehicles have established plants in the city that take advantage of the policy. Local auto parts maker Wanxiang Group also is getting into the electric vehicle business. Several of Hangzhou’s largest industrial zones offer incentives to encourage further growth of higher value-add sectors.

Strong private sectorIn contrast to other cities that are dominated by state-owned enterprises (SOEs), Hangzhou is notable for the strength of its private sector, reflecting Zhejiang Province’s reputation for private enterprise and entrepreneurship. Indeed, privately-owned companies accounted for 59.6% of Hangzhou’s GDP in 2016, and almost one-fifth of China’s top 500 privately-owned companies are based here. Alibaba is by far the most famous example, and others include automaker Geely, leading video surveillance equipment supplier Hikvision, food and beverages producer Wahaha, and car parts maker Wanxiang Group.

e-commerce sales in 2015.

A strong entrepreneurial community and policy support have helped Hangzhou produce a string of tech success stories including Kuaidi Dache, a ride-hailing app that eventually merged with rival Didi Chuxing to dominate the domestic market. Hangzhou entered 2017 with its tech industry firing on all cylinders, with standouts including cloud computing – whose value-added expanded by 28.2% over 2016 – and the e-commerce and mobile internet sectors, both up by more than 45%.

Manufacturing climbs the value chainHangzhou is re-orienting its industrial economy towards advanced manufacturing. The automobile and electronic equipment industries both grew strongly over 2016, and the city counts advanced equipment manufacturing, biomedicine, and new energy among its top ten economic sectors. The city is a major center for automobile production, and is home to one of the country’s largest automakers, Geely. The national government also has made Hangzhou


Infrastructure

HighwaysHangzhou is well-integrated with the dense network of expressways that make the Yangtze River Delta one of the best-connected parts of the country. Expressways radiating from

Hangzhou across Zhejiang Province position it as an overland distribution center for rising e-commerce deliveries and other goods. Hangzhou is continuing to boost connectivity to nearby cities. For example, in 2016 the government approved a 162-kilometer highway from Hangzhou to the coastal city of Taizhou.

RailwaysHangzhou is a key node in China’s high-speed rail network, already the world’s largest and still growing. Business trips to Shanghai may be completed over a single day, thanks to the nearly 100 daily trains that travel to China’s financial capital in as little as 46 minutes. Most trains depart from the modern new Hangzhou East Railway Station, completed in 2013 specifically to serve high-speed rail passengers. Hangzhou also is a major stop on lines extending from Shanghai to southern China, such as the recently opened Shanghai-Kunming route. One of the longest high-speed rail lines in the world, it reduces travel times to Kunming from forty hours to ten.

Major Cities with Direct Access to Hangzhou via High-speed Rail


Metro NetworkHangzhou is home to one of the country’s most rapidly expanding metro systems. The subway network consisted of three metro lines totaling 81.5 kilometers in 2016, and the city plans to invest RMB 142.6 billion to construct 10 additional lines (including major extensions to the three existing lines) in preparation for hosting

the Asian Games in 2022. Once the planned lines are operational, the metro network’s total length will increase to 388 kilometers.

Hangzhou’s longest existing line is Metro Line 1, extending from Xiaoshan in southern Hangzhou to Yuhang and Xiasha in the northeast, and connecting key downtown locations like West Lake and Wulin Square. Qianjiang New Town is well-connected by Metro Line 4.

AirportHangzhou’s proximity to Shanghai and its two massive airports mean that it is unlikely to become a regional air passenger and freight hub on the scale of big inland cities like Wuhan or Chengdu. Still, Hangzhou’s Xiaoshan International Airport serves enough passengers to be the fifth largest international airport in the country, servicing 31.6 million passengers in 2016, an 11% increase from the previous year. There are 240 air routes operating out of Hangzhou, of which 38 service international destinations such as Amsterdam, Sydney, and San Francisco.

Hangzhou Metro Network


Key Development Areas

Hangzhou’s population growth and rapid economic development have pushed the city to spread beyond its traditional boundaries, leading the local government to designate a number of areas to house expected commercial and industrial activity. This section discusses those JLL considers most important:

Qianjiang New Town Qianjiang New Town (QJNT) is Hangzhou’s master-planned new central business district (CBD), designed to relieve pressure on the city’s traditional commercial core. It is located 5km east of the West Lake near the bank of the Qiantang River. As Hangzhou’s civic center, it houses the new headquarters of the city government as well as landmark public buildings like the Hangzhou International Conference Center, which hosted the 2016 G20 Summit.

As a central business district, it contains some of the city’s largest concentrations of investment-grade retail, office, and high-end residential space, having attracted major national and international developers such as China Resources, Sun Hung Kai, Oceanwide, and CapitaLand. Efficient transportation, strong amenities, and relatively close proximity to the traditional downtown have helped make QJNT one of the more successful ‘new central business district’ schemes in China.

Development ZonesBeyond Hangzhou’s core area lie a number of government-designated industrial areas with well-connected infrastructure and policy incentives tailored to attract investment from large domestic and foreign corporations. These areas drive much of Hangzhou’s technology and advanced manufacturing economy, and there are seven national-level zones serving a variety of industries. More detailed profiles of the zones are shown in the table on the next page.


Name of Development Area Established Year Location

Planned area (square kilometers)

Characteristic Industries

Major investors

Hangzhou Economic and Technological Development Area

Established 1990; approved 1993

Xiasha and Baiyang sub-district, Jianggan District

104.7 Equipment manufacturing, information, bio-pharmaceuticals, modern food products, new energy and new materials

Panasonic, Toshiba, Merck & Co., Master Kang, Pfizer

Xiaoshan Economic and Technological Development Area


Ningwei Town, Xiaoshan District

110.0 Advanced equipment manufacturing, light textiles, electronic appliances, fine chemicals, furniture

Zhejiang 3SBio, ABB, General Electric, Fiat, Yamaha, Sinotruk

Hangzhou Yuhang Economic and Technological Development Area


Linping, Yuhang District

76.9 Equipment manufacturing, health industry, green industry, electronic communications, modern services

Hitachi, Otis Elevator, Mitsubishi Heavy Industries, Honeywell, Novartis, GlaxoSmithKline, Sanofi, Eli Lilly Company

Fuyang Economic and Technological Development Area


Fuyang District 126.1 R&D headquarters, electronic information, culture and creative industries, Internet of Things, e-commerce, bio-pharmaceuticals, advanced equipment manufacturing, smart sports industry

Insigma Technology, JD.com, Zhejiang Dahua Technology, Zhejiang Daily Media

Hangzhou High-Tech Development Area


Binjiang District 85.6 Internet of Things, information software development, e-commerce, digital media

Alibaba, H3C, Hikvision, Supcon, Focused Photonics

Linjiang National High-tech Area


Northeast Xiaoshan District

3.6 New energy vehicles, new energy, robotics, modern logistics, special fibers and new composite materials, electronic information, Internet of Things

Dongfeng Yulon, Chang’an Ford, Gree Electric Appliances, Geely (new energy vehicle)

Hangzhou Zhijiang National Tourist Resort

1992 Xihu District, Shangsi Area

26.7 Leisure and recreation, culture and creative industries, high-tech industries

Hangzhou International Finance Conference Center, West Lake Crystal City, Chinese Showbiz Valley

Hangzhou State-level Development Zones


Major Local FirmsAlibaba Alibaba was founded in 1999, and in 2016 was ranked 62nd among China’s top 500 enterprises. The group specializes in a range of

Internet-based services, and has become the world’s largest retail platform by gross merchandise volume. As of September 30, 2016, it had a total of 46,689 employees. Alibaba went public in New York Stock Exchange in 2014. In 2016, the firm’s total revenue exceeded RMB 101.1 billion, up 32.7% year-on-year.

Geely Zhejiang Geely Holding Group was founded in 1986 and entered the automobile industry in 1997. In July 2012, the company became the only private automobile manufacturer from China listed in the Fortune Global 500, and in 2016, it was ranked 410th among the world’s top 500 companies. The group has more than 19,000 employees, including over 6,100 engineers and technicians. In May 2005, the company went public in Hong Kong. In 2015, Geely sold a total of 510,097 cars, with domestic operating revenue of RMB 28.3 billion.

Wahaha Founded in 1987, Wahaha has established over 80 production bases and more than 180 subsidiaries in 29 of China’s provinces, autonomous regions, and municipalities. The firm has 30,000 employees and total assets worth RMB 40 billion. It has grown into one of the largest and most profitable beverage companies in China. Wahaha had the operating revenue of RMB 49.5 billion in 2015. The company ranked 70th among China’s top 500 private enterprises in 2016.

Wanxiang Established in 1969, Wanxiang Group is mainly engaged in automotive components manufacturing and sales. It established a fully-controlled subsidiary in the US in 1993, and was listed as one of China’s 520 national key enterprises in 1999. With a total of 40,000 employees, the company has acquired four listed companies – Wanxiang Qianchao, Shunfa Hengye, Wanxiang Doneed, and Cheng De Lolo. In 2015, Wanxiang’s total revenue reached RMB 115.4 billion, the eighth highest total China’s automobile industry.

Rongsheng Founded in 1989, Zhejiang Rongsheng Holding Group has primary businesses in petrochemicals and synthetic fibers, and is also active in industries such as finance, real estate, logistics and trade. The firm has a number of subsidiaries including Rongsheng Petrochemical, Ningbo Joint Group, and Tianyuan Group. In 2016, the company was ranked 196th among China’s top 500 enterprises and 26th among the country’s top 500 private enterprises. In 2015, the group’s operating revenue reached RMB 32.6 billion, with net profit of RMB 462 million.

Hikvision Hikvision is China’s leading video surveillance products supplier. It has set up branch companies in 35 cities in China and has 25 subsidiaries overseas, with a total of more than 17,000 employees worldwide. The company’s core products have achieved over 50% market share in China, and the firm has achieved nearly a one-fifth market share on the global surveillance equipment market. Hikvision was officially listed on the Small and Medium Enterprise Board (SME Board) in the Shenzhen Stock Exchange in 2010. Its operating revenue reached RMB 25.3 billion in 2015, up 47.0% y-o-y.

Major Foreign InvestmentsPfizer In June 2016, Pfizer started construction on a Global Biotechnology Center in Hangzhou’s Economic and Technological Development

Area (HEDA) with a total investment of USD 350 million, scheduled to be completed in 2018. The Global Biotechnology Center is Pfizer’s third biotechnology center globally after others in the US and Ireland. The center is expected to create more than 150 job opportunities that will help boost local biotechnology expertise.

Royal Dutch Shell

In February 2016, Shell confirmed it would build a presence in Hangzhou’s Xiacheng District with a registered capital of RMB 280 million and a total investment of RMB 820 million in its first phase. The project will oversee the operation of Shell’s fueling stations, including the use of refined oil products and lubricants as well as maintenance and other support services for vehicles.

Ford Motor Chang’an Ford is a joint venture between Ford Motor and China’s Chang’an Automobile. The JV has established a plant in Hangzhou with a total land area of 1.4 million sq m and a total investment of USD 760 million. In March 2015, the plant’s whole vehicle factory was put into operation. With seven main production lines and nine assembly lines, the factory has a capacity to produce 250,000 units per year.

CleanTech Partners

Singapore’s CleanTech Partners has collaborated with Hangzhou’s Vanwarm Holdings to establish the Hangzhou-Singapore Eco-Park. The total investment of the project’s first phase is expected to be RMB 2 billion (approximately SGD 400 million). With a total land area of 23 hectares and gross floor area of more than 500,000 square meters, the project is currently under construction.

Panasonic Panasonic Appliances Washing Machine (Hangzhou) was jointly founded by Panasonic and Hangzhou Goldfish Electrical Appliances in 1992. The company since has invested in nine projects in Hangzhou, forming a comprehensive home appliance manufacturing chain. In 2004, Panasonic invested a total of RMB 1.9 billion in building the Panasonic Industrial Park in Hangzhou, which included the company’s largest overseas home appliance R&D center overseas. At the time it was Panasonic’s largest project in China.

Ferrero Ferrero Food Hangzhou is Ferrero’s first production base in China, and its 22nd manufacturing plant globally. The project represents a total investment of RMB 5 billion, and the company expects annual sales revenues to reach RMB 5 billion. Occupying a total land area of approximately 100,000 square meters, the plant was put into production in September 2015, producing Ferrero Rocher, Kinder Joy, and Kinder Chocolate.


Market Size

Office Stock Grade A (sq m) 1,109,000

Retail Stock (sq m) 3,052,047

Number of International-Brand Hotels, 4-Star and Above

41

Investors/Developers/Operators

OfficeCapitaLand, Greenland, Hangzhou Hualian, Kerry Properties, Ping An, Sino-Ocean, Vantone

RetailCapitaLand, China Resources, Hangzhou Hubin, Intime Group, Kerry Properties, Longfor Properties, Powerlong, SCP, Shui On Land, Wanda Group

ResidentialEvergrande, Gemdale, Greentown, Longfor Properties, Qianjiang Real Estate, Shimao Property, Sino Ocean Land, Vanke, Zhejiang Jiahe Industrial, Binjiang Real Estate

Industrial/LogisticsE-Shang Redwood, Fosun, GLP, Mapletree, Prologis, Vanke

HotelsBanyan Tree, Four Seasons, Hyatt, Shangri-La, Sofitel, Sheraton

Occupiers

RetailApparel: Burberry, Christine Dior, Chanel, Coach, Dolce & Gabbana, Emporio Armani, Gap, Hermes, H&M, Louis Vuitton, Moschino, Salvatore Ferragamo, Uniqlo, ZaraHypermarkets: Auchan, Carrefour, China Resource Vanguard, Darunfa, Lianhua, Lianhua, Wal-Mart,Other: Apple, IKEA

Service FirmsDeloitte, JLL, KPMG, Nielsen, PWC, Ernst & Young

Financial InstitutionsAgriculture Bank of China, Allianz, Bank of Beijing, CITIC Securities, Citibank, HSBC, ICBC, Ping An Insurance, SinoKorea Life Insurance, Standard Chartered Bank, Sumitomo Mitsui Bank, Taikang Life Insurance

LogisticsKFC, UPS, China Resources Vanguard, Cainiao, Faurecia

Investors

Postal Savings Bank of ChinaAcquired Mingzhu International Business Center Building 6 in 4Q16. The property is a 52,000 sq m office tower, and sold for a unit rate of RMB 26,500 per sq m and a total price or RMB 1.38 billion.

Sinze Holding Co. Purchased half of Hangzhou Greenland Central Plaza Tower 3 in 1Q16. The space consisted of about 12,000 sq m and sold for a unit rate of RMB 22,500 per sq m, for a total price of RMB 270 million.

Real Estate Dashboard, 4Q 2016

Key Players Key Transactions

Market ActivityOffice Space Under Construction Grade A (sq m)

614,000

Office Vacancy Grade A (%) 33.5%

Prime Retail Space Under Construction (sq m) 1,606,000

Prime Retail Vacancy (%) 7.5%

Benchmark ValuesOffices Grade A – Net Effective Rents (RMB per sq m pa)

1,631

Prime Retail – Net Effective Rents (RMB per sq m pa)

8,454

Logistics – Rents (RMB per sq m pa)

365

High-end Residential CVs (RMB per sq m net)

39,465


Office Market

Hangzhou’s office market has grown rapidly in recent years, with total Grade A stock reaching 1.1 million sq m by the end of 2016. Steadily increasing net absorption figures over the past several years indicate rising demand for high-quality office space. Many firms are upgrading from older Grade B buildings as they seek to improve their corporate images and compete for clients’ business. Large firms also have purchased significant amounts of space in newly-completed buildings for their own self-use.

Demand comes from a range of sectors: professional service firms are very active, as are financial firms, particularly banks, insurance companies, and firms developing new financial technologies like electronic payments services. Technology firms are another key driver of demand, especially small-to-mid-sized companies that lack the scale to build Alibaba-sized corporate campuses.

Grade A Office Stock Comparison, YRD Cities

* Shanghai figures are for CBD area only. Source: JLL Real Estate Intelligence Service (REIS)


For many years, most of the city’s Grade A stock was concentrated in the traditional CBD centered on the Huanglong, Wulin, and Qingchun submarkets. These submarkets command the city’s highest office rents and remain popular with firms seeking proximity to Hangzhou’s traditional commercial core. In recent years, the traditional CBD’s Grade A stock has been surpassed by that of Qianjiang New Town (QJNT), Hangzhou’s designated new CBD. Leasing momentum in QJNT has risen in the past two years as the area’s subway connectivity and retail amenities have improved, while its relatively affordable rents have helped entice firms to relocate from the traditional CBD. QJNT is also home to the lion’s share of projects under construction.

While the vast majority of Hangzhou’s Grade A stock is concentrated in the above submarkets, the local government has plans to develop other areas for commercial use, including the Canal Business District (north of Wulin), the Hangzhou Future Sci-Tech City (west of Huanglong), and

Qianjiang Century City (on the south bank of the Qiantang River).

Hangzhou’s Grade A supply wave peaked in 2016, leaving overall market vacancy at just over 30% - higher than that of Shanghai, but close to other large YRD markets like Suzhou and Ningbo. Hangzhou’s advantage is that it pairs relatively strong demand

with a relatively limited future supply pipeline, leading us to expect that vacancy will decline in the near-to-mid-term. Landlords are expected to refrain from aggressively raising rents in the short-term, but rents will have greater room to rise in later years as vacancy falls and the market becomes more landlord favorable.

Grade A Office Stock Comparison, Hangzhou Submarkets

Hangzhou Office Submarkets

Source: JLL Real Estate Intelligence Service (REIS)


Retail Market

Hangzhou’s retail market includes just over 3 million sq m of high-quality retail space, of which approximately 80% consists of shopping malls and the remainder of freestanding department stores. The city’s traditional retail core contains 1.3 million sq m of space, much of it just east of the West Lake in the Hubin, Wulin, and Qingchun submarkets. Department stores account for a majority of these areas’ stock, including the city’s preeminent luxury destination, Hangzhou Tower. Over the past decade, the core retail area also has expanded to encompass Qianjiang New Town, whose MixC property has emerged as the city’s top shopping mall.

Core submarkets have contributed less than a quarter of new stock over the past five years. Most new retail development instead has followed the construction of new residential neighborhoods out to decentralized submarkets to the north, west, and east of the city center, as well as on

the southern side of the Qiantang River in Binjiang District. Decentralized retail now accounts for over half of Hangzhou’s market, and includes major properties by well-known regional and national developers like InCity and Wanda.

Prime Retail Stock Comparison, Hangzhou Submarkets

Hangzhou Retail Submarkets


Hangzhou is experiencing a surge in new retail supply, with the overall retail stock having nearly tripled since 2011. The city has weathered the supply wave relatively well, with

Core1 Wulin & Hubin2 Qingchun3 Qianjiang New Town

Decentralized4 Binjiang5 City West6 City North7 City East8 Jiubao & Xiasha9 Xiaoshan


market vacancy remaining in the single digits even as other YRD cities have seen vacancy rise in the face of their own supply waves. This may be partly explained by the health of Hangzhou’s consumer class: the city’s average annual disposable incomes at RMB 52,185 exceed those of almost all other Tier 1.5 cities and even those of Guangzhou. In addition, the city’s retail sales more than doubled between 2010 and 2015, growing at a rapid pace of 17% a year – faster than any other major city in China. The city is known for sophisticated consumers who look to Shanghai for the latest trends, and many international retailers have made the city a fixture for store roll-outs beyond Tier 1 markets. As a result, we feel optimistic that retail properties will be able to find and retain tenants, keeping overall vacancy low even as the city adds another 1.3 million sq m of new stock in the years ahead.

Hangzhou until recently has been distinguished by a relative lack of major international developers. Hong Kong players like Swire and Hang Lung have been noticeably absent, and even major domestic developers have had a limited presence. Most of the market instead has been built by local players; Hangzhou-based Intime Retail alone operates over a quarter of

Hangzhou’s prime stock. This situation is slowly changing, however. Hong Kong developer Kerry Properties opened a high-quality mall in the downtown Hubin submarket in 4Q16, and Singapore-based CapitaLand is planning to open one of its flagship Raffles City malls in Qianjiang New Town in 2017. In addition, major national developer Longfor opened

a Paradise Walk mall in the city’s burgeoning Xiasha submarket in late 2015. This ongoing wave of high-quality new developments is expected to push the city’s retail scene to a new standard in the years ahead.

Prime Retail Stock Comparison, YRD Cities



Logistics Market

Hangzhou has been a relatively late bloomer in the crowded field of YRD logistics markets. While major international and domestic developers rapidly expanded their presence in cities like Suzhou and Nanjing, Hangzhou until recently remained dominated by Grade B legacy stock built by local developers.

Hangzhou’s slow start can be attributed to initially weak demand for high-quality warehouse space. The small and medium private firms that make up a large part of Hangzhou’s economy tend to be cost-conscious, and previously were unwilling to pay a premium for international-grade warehouse space. This has begun to change in recent years, however, as

the growth of the consumer sector has led retailers, e-commerce firms, and third-party logistics providers (3PLs) all to place a greater priority on efficient distribution, boosting demand for high-quality warehouse space.

As of end-2016, however, Hangzhou’s high-quality stock of 347,000 sq m remained limited compared to other major YRD distribution hubs like Suzhou and Nanjing. The market therefore has potential for considerable upgrade demand, stemming from firms currently occupying legacy projects who would like to relocate to higher-quality ones once they are available.

Until 2016, the only international developer with a presence in Hangzhou was GLP. In 2016 Singapore-based Mapletree finished a large distribution facility, and domestic developer Fosun also delivered a project there. More well-known developers are expected to enter the market in the years ahead, including

High-quality Non-bonded Warehouse Stock Comparison, YRD Cities



E-Shang Redwood, Prologis, and Vanke. GLP will continue to expand its presence as well. All of this new supply means that the market is set to enter a growth spurt, with total stock expected to more than double to 803,000 sq m by 2018.

Most high-quality supply is located in the Dajiangdong submarket on the south side of the Qiantang River, close to an emerging industrial area where there are several automobile and auto-component companies as well as high-tech manufacturers. There also are a handful of projects scheduled for completion in the Yuhang submarket north of Hangzhou’s downtown. This location is expected to be most popular with firms focused on retail and e-commerce distribution, who would prefer to be on the same side of the river as the majority of their customers.

Despite the market’s relative youth, Hangzhou’s high-quality logistics rents are high relative to its Yangtze River Delta peers, an indication of strong upgrade demand from firms willing

term, we expect vacancy to fall and rents to climb further as the market’s pent-up demand makes its presence felt.

to pay a premium for high-quality, well-located distribution space. Large forecast supply over the next few years may lead to a brief rise in vacancy as the market digests a rapid increase in stock, but over the medium-to-long-

High-quality Non-bonded Warehouse Rent Comparison, YRD Cities, 2016



Residential Market

Hangzhou’s advanced economy generates considerable demand for high-end homes. Leaders and management-level staff at the city’s numerous private enterprises are known to upgrade housing as fortunes rise, while experienced technology

professionals at firms like Alibaba represent a growing additional source of demand. Hangzhou’s status as a provincial capital helps its prospects as well: wealthy homebuyers from elsewhere in Zhejiang province flock to the capital seeking vacation

homes and investment opportunities. Consistently robust demand has helped make Hangzhou one of the strongest high-end residential markets in China, with YE2016 high-end sales prices higher than those of any other non-Tier 1 city.

The city contains six major high-end residential submarkets. The largest and oldest is the Old Town submarket, which covers the area surrounding the West Lake and includes the city’s most mature commercial districts. Land for future development in Old Town is limited, however, and future high-end supply will come from Old Town’s surrounding areas. Chief among these is the new CBD at Qianjiang New Town, already the city’s second largest and second most expensive high-end residential market. High-end development also has extended east to Jiubao and Xiasha, north to Shenhua, Qiaoxi, and Gongbei, and west to Xixi, whose wetlands have drawn homebuyers seeking a pleasant natural environment. In addition, the Binjiang submarket on the southern

High-end Residential Stock Comparison, YRD Cities

Hangzhou Residential Submarkets



bank of the Qiantang River hosts many high-end developments with riverside views.

Like China’s other large residential markets, Hangzhou’s trajectory is influenced by national policy. For example, high-end home sales volumes and prices soared over 2015 and 2016 as the government relaxed down payment and mortgage requirements in an effort to stimulate China’s economy. As 2016 drew to a close, the government was beginning to tighten policy again to prevent the residential market from overheating. As a result, high-end sales in Hangzhou fell in the final months of 2016, and price growth slowed as well.

Tighter policy notwithstanding, we overall remain optimistic about Hangzhou’s prospects going forward. The city’s inventory of unsold high-end homes is low, and the pipeline of new developments is moderate through the mid-term. Historically, demand for

high-end homes has kept pace with new supply, and the city’s strong and diversifying economy indicates it will continue to attract owner-occupiers seeking high-quality housing. As a result, we expect demand to remain strong in spite of the tighter policy

environment. Developers thus will feel little pressure to cut prices, and there may even be further price increases, though perhaps not at the same rates observed over the market’s 2016 rally.

High-end Residential Stock Comparison, Hangzhou Submarkets



Hotels Market

Data from Hangzhou’s Tourism Bureau show the city’s tourist arrivals climbed 13.5% y-o-y to 140.6 million over 2016. The city’s rapid development and booming travel market have helped make it one of the most popular business and sightseeing destinations in the Yangtze River Delta. Hangzhou’s hotel market also has grown quickly, with more and more international brands establishing a presence here. JLL’s market tracking shows that at the end of 2016, there were approximately 40 international-branded hotels with mid-to-upscale positioning, including Park Hyatt Hangzhou, Amanfayun Hangzhou, and Banyan Tree Hangzhou. Twenty-one more international hotels are expected to enter the market in the next 3 to 5 years. High-end hotels mainly concentrate around the West Lake, and are expected to gradually extend into Qianjiang New Town as well. This rapid development reflects investors’ confidence in the hotel market.

Hotel performance has improved in recent years. From 2014 to 2016, the Revenue per Available Room (RevPAR) achieved a CAGR of 11%, reaching RMB 679 by the end of 2016. Average occupancy in 2016 stood at 61.2%. Strict security checks and tightening visa policies associated with the G20 Summit had some impact on hotel performance in 2016, but JLL anticipates that the market will resume its growth trend quickly thanks to strong demand generated by the city’s broader development.

Hangzhou’s hotel demand is driven by business travel as well as the tourism and MICE (Meetings, Incentives, Conferences and Exhibitions) travel segments. Hangzhou is one of the Yangtze River Delta’s major commercial centers, and business travel is the dominant source of hotel demand, thanks to a steady stream of visitors involved in the city’s e-commerce and technology industries. Hangzhou’s tourism market

is growing rapidly, supported by rising domestic consumer spending power as well as the city’s successful promotion of its scenic sites and other attractions. At the same time, hosting the G20 Summit has boosted Hangzhou’s international profile and is likely to benefit its future development as a MICE destination. The city’s hotel industry will be further supported by continued investments in public transportation and other infrastructure projects, particularly as the city prepares to host the Asian Games in 2022.


Definition of Terms

Economic DashboardPopulation: Refers to the total population living in the city at the end of the year. This figure specifically refers to residential population, or the population that resides in the city permanently, usually for longer than half a year. It is distinct from the registered population, which refers to people registered as living in Hangzhou but may in fact be residing elsewhere. Urban Population: Refers to the total population residing in the city’s urban areas, including the core city as well as nearby county-level cities and towns. GDP: Refers to the gross domestic (i.e. regional) product of a location.Tertiary GDP: Refers to the portion of gross domestic product derived from the tertiary sector (i.e. services). Population Growth: Refers to the compound annual growth rate over the stated period.GDP Growth: Refers to the compound annual GDP growth rate over the stated period.Airport Passengers Throughput: Refers to the number of passengers passing through the city’s airport, measured in millions of person trips.Freight Throughput: Refers to the volume of freight transported through the city by various means, measured in millions of tons. Utilised FDI: Refers to investments made inside the city by foreign enterprises and economic organisations or individuals (including overseas Chinese, compatriots in Hong Kong and Macau, and Chinese enterprises registered abroad).Exports: Refers to the value of exports by trading companies registered in Hangzhou.GDP/Capita: Refers to total gross domestic product divided by the registered population.Disposable Income: Refers to income, after tax and national insurance payments have been paid. Higher Education Institutions: Refers to the number of higher education institutions providing higher education courses and training for senior professionals. They include full-time universities, colleges, higher professional schools, higher professional vocational schools and others. Higher education institutions are set up according to the central government evaluation and approval procedures.Total Enrolments: Refers to the total number of students enrolled at the city’s higher education institutions. Does not include graduate students.Unemployment Rate: Refers to the ratio of the number of registered unemployed to the sum of number of persons employed and registered unemployed in a location.Average Wage: Refers to salary that is pre-tax and comprises all kinds of income, including bonuses, allowances and payments-in-kind as reported by the local statistics bureau.

Real Estate DashboardOffice Stock Grade A: Refers to the total completed Grade A office space (occupied and vacant) as defined by JLL REIS China. Retail Stock: Refers to prime retail stock and includes department stores and shopping malls. Number of Hotels: Refers to the number of international-brand hotels rated at four or five stars, as defined by JLL Hotels.Office Space Under Construction Grade A: Refers to the total amount of Grade A office space in properties under construction as of time of writing, and scheduled for completion by 2020.Office Vacancy Grade A: Refers to Grade A office floor space (as a % of total Grade A stock) in existing properties that are physically vacant and ready for occupation.Prime Retail Space Under Construction: Refers to the total amount of prime retail space in properties under construction as of time of writing, and scheduled for completion by 2020. Prime Retail Vacancy: Refers to prime retail floor space (as a % of total lettable space) in existing properties that are physically vacant and ready for occupation.Offices Grade A – Net Effective Rents: Refers to open-market rents that would transact for a typical space in the middle floors of the property, quoted on a GFA basis. Does not include management fees. Prime Retail – Net Effective Rents: Refers to open-market rents that would transact for ground floor space in a typical retail center, quoted on an NLA basis. Does not include management fees. Logistics – Rents: Refers to open-market rents that would transact for a typical international-standard warehouse, quoted on a GFA basis. Does not include management fees. High-end Residential CVs: Refers to typical prices (within a range) for high-end residential projects in RMB per square metre.


JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

JLL has over 50 years of experience in Asia Pacific, with 36,000 employees operating in 94 offices in 16 countries across the region. The firm won the ‘World’s Best’ and ‘Best in Asia Pacific’ International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the fifth consecutive year by Real Capital Analytics. www.ap.jll.com.

In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2016, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country. www.joneslanglasalle.com.cn

About JLL


Eric XinManaging Director Hangzhou+86 571 8196 5998+86 136 0160 9767 [email protected]

Sophia DiHead of Strategic Consulting Hangzhou+86 571 8196 5958 +86 189 6916 3031 [email protected]

Sharon SunSenior Consultant, Strategic Consulting Hangzhou+86 571 8196 5959 +86 139 6801 [email protected]

Authors

Joe ZhouHead of Research China+86 21 6133 [email protected]

Warner BrownAssociate Director, Research East China+86 21 6133 [email protected]


JLL Offices in Greater China

joneslanglasalle.com.cn © 2017 Jones Lang LaSalle IP, Inc. All rights reserved. The information conta ined in this document is proprietary to JLL and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of JLL and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of JLL. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

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