China Businessparks Full Screen

Real value in a changing world

World Winning CitiesGlobal Foresight Series 2008

China Business ParksThe next real estate opportunity

World Winning Cities • China Business Parks • June 2008 • 2

©2008 Jones Lang LaSalle. All rights reserved

China Business ParksThe business park sector in China is still in its infancy with a development history of little morethan 10 years. However, the sector is now firmly poised for ‘lift-off’ as the property marketresponds to the increasing requirement for high quality decentralised business space.This paper looks at the short history of the business park market in China, reviews the futuredrivers of growth, identifies the likely business park hotspots and assesses how thedevelopment and investment landscape is likely to evolve over the next few years

China’s emerging business park sector offersrobust demand fundamentals. Strengtheningoccupier demand for high quality business parkspace in China is being underpinned by theexpansion of R&D activities of hi-tech andpharmaceuticals firms seeking high specificationspace, by the rapid growth in Business ProcessOutsourcing (BPO); and by large MNCsincreasingly seeking campus style space outsideof higher cost CBD locations. Demand is beingfurther boosted by the government’s strategy ofmoving the Chinese economy up the value chainand its policy of mapping out R&D and BPOclusters across the country.

The real estate development market is nowresponding to the increasing demand for higherspecification, lower cost space with larger floorplates in decentralised locations. The stock of

business park space in China, which isestimated to stand currently at circa 17 million sqm, is expected to more than double to close to38 million sq m by 2010 (based on stockestimates in 15 cities). Over 60% of the currentstock is located in four cities – Shanghai, Beijing,Dalian and Guangzhou. A number of other citiessuch as Chengdu, Suzhou, Xian and Tianjin areexpected to witness a sharp increase in businesspark activity over the next few years.

Jones Lang LaSalle’s research has identified 15business park hotspots across China, which webelieve will be the focus of future business parkactivity over the next decade. We have groupedthese cities into three market types, each groupoffering different opportunities andcharacteristics for occupiers, developers andinvestors.

Business ParksCity Classification

Prime MarketsShanghai, Beijing

Transitional MarketsDalian, Chengdu

Hangzhou, Xian

Nanjing, Guangzhou

Shenzhen, Suzhou

First Mover AdvantageMarketsTianjin, Jinan, Chongqing

Qingdao, Wuhan

Executive Summary



Prime MarketsShanghai and Beijing have been the pioneers inthe provision of higher quality business parkspace. They account for more than one-third ofChina’s current business park stock and are hostto China’s most high profile parks, notablyCaohejing Hi-tech Park and Zhangjiang Hi-techPark (in Shanghai) and Tsinghua Science Park inBeijing’s Zhongguancun District (China’s ‘SiliconValley’). Robust occupier demand in these citiesis being supported by the rapid expansion ofR&D activities, growth in back-offices and thedecentralisation of business activities from CBDlocations. Shanghai and Beijing are China’s mosttransparent markets and are currently favouredby established players and new market entrants,such as Goodman, CapitaLand, Shui On andFrasers Property.

Transitional MarketsDalian, Chengdu, Hangzhou, Guangzhou,Shenzhen, Xian, Nanjing and Suzhou aregradually catching up with the prime markets interms of the quality of business parks projects.These cities are developing their niche marketsto differentiate from the prime markets,particularly in BPO activities. Dalian stands outamongst the transitional markets; the city hasbecome a premier hub for outsourcing and hasone of China’s most developed business parksectors. Transitional markets are a target for anumber of international and domestic developersincluding Ascendas and Software Park China.Their participation will help to improve qualityand transparency.

First Mover Advantage MarketsTianjin, Jinan, Chongqing, Qingdao and Wuhancurrently have lower levels of business parkactivity, but their local governments haveaggressive expansion plans, and in order toattract high quality tenants and experienceddevelopers, they are offering generousincentives for new entrants. These cities provide‘first-mover advantages’, with lower land costsand less competitive real estate environments.We believe that Tianjin offers the best potentialto develop as a robust business park market,due to strong government support and thepresence of MNCs.

The business park sector is now attractinginternational developers and investors, reflectingthe robust long term demand fundamentalsoffered by business parks, as well as due to thestrong competition and tighter regulations incommercial property. Ascendas, Goodman,Frasers Property, Shui On and CapitaLand have,to date, been the most active internationaldevelopers. A number of US investors such asGE, Blackstone, Morgan Stanley and GoldmanSachs have all expressed interest in the

business parks sector. The credit crunchaffecting the US markets in 2008 is putting a newspotlight on investment opportunities in China,but the long term impacts on the China businesspark investment market remain to be seen.

So far, there are still very few dedicated businesspark developers. Software Park China, whichdeveloped Dalian Software Park, is currently themost active. However, the opportunities offeredby the business park market are starting toattract more domestic players, with companiessuch as Raycom and TecPark Development nowentering the market.

There are currently a limited number of projectson the market that meet international investmentstandards, which together with the opaquebusiness environment have constraineddevelopers’ and investors’ expansionprogrammes. Most investors are currentlyadopting a cautious approach, but they areuniversally confident about growth prospectsover the next five years.

Source: Jones Lang LaSalle 2008

Business Park Activity Index

Investment Risk Index

First MoverAdvantage Markets

Transitional Markets Prime Markets

• Wuhan

• Qingdao• Chongqing

• Beijing• Chengdu

• Hangzhou• Guangzhou• NanjingSuzhou•

Jinan •Tianjin •

Shanghai •• Dalian• Xian

Shenzhen•

0.4

0.6

0.8

1.0

1.2

1.4

1.6

China Business Parks - Real Estate Activity v Risk

0.4 0.5 0.8 1.0 1.2 1.4 1.5 1.6

Jones Lang LaSallehas identified 15 citiesacross China where

we expect thebusiness park market

to grow strongly



AShort History of Business ParksThe business park sector in China has evolved from the early industrial zoneswhich first appeared back in 1980. During the 1980s and early 1990s theseindustrial zones largely attracted manufacturing activities. However, as thegovernment increasingly focused on developing its high tech sectors, we haveseen the gradual emergence of business parks within industrial zones; a trend thatstarted in the late 1990s and which has accelerated during the current decade.

The existence of high quality business parkspace, as recognized by the international realestate community, can only be traced back to themid 2000s. Nonetheless, today’s business parklandscape has been shaped by the severalwaves of development over recent years:

• During the 1980s, development reflected afocus on manufacturing activities and initiallycomprised of self-build factory buildings.Gradually build-to-suit developments appearedin response to a requirement for greaterflexibility

• From the mid 1990s, industrial zoneswitnessed their first office developments. Theytypically comprised of mid rise office buildings,provided to a basic ‘bare-shell’ specificationand occupied by smaller scale companies

• The late 1990s/early 2000s saw the start of thedevelopment of decentralised offices, which

provided standard quality space but atsignificantly lower rents compared to CBDmarkets. These properties were typically mid-to-high rise, with some buildings featuring largefloor-plates

• More recently, we have seen the emergence oflow density campus developments that providebusiness park space for larger scale activitiesand headquarter functions of MNCs. Also,stand alone SOHO buildings have begun toappear in business parks; SOHO buildings aretypically less than 4,000 sq m and providespace for small to medium size companies

Today’s business parks are usually characterisedby a broad mix of building types, all of whichcontinue to be built in response to very differentuser requirements, from lower specification semi-industrial units to high quality headquarter officesthat compete with the CBD markets in terms oftheir quality and working environment.

Business Park Evolution

1980’s/Early 1990’s• Factory Buildings• Light Industrial• Storage/Logistics

Mid 1990’s• Mid Rise Offices• Bareshell• Small Scale Office Activities

Late 1990’s• Mid to High Rise Offices• Standard Spec• Low Cost Office Uses• Decentralisation• R&D Activities

2000’s• Low Density Campuses• Higher Spec• Large Floor-plates• Headquarter Economy• High Value Activities• Consolidation



The business park market in China is poised for strong growth, as a number ofmacro-economic and business factors combine to produce the conditions for‘lift-off’, characterised by strong demand for high specification, low density businessspace across a number of China’s Tier I and II cities.

more streamlined approval processes. In order tomaintain its competitive edge on a globalplatform, China industrial policy has shiftedtowards more value-added activities to offsetrising labour and land costs. Key targets areResearch and Development (R&D), BusinessProcess Outsourcing (BPO) and Headquarteractivities, all of which generate strong demandfor business park space.

China is recognized as the ‘world’smanufacturing factory’, a position that it hasestablished over the last two decades, due to afavourable combination of low cost labour,operations and land. However, China is facingincreasing competition from neighbouringcountries, such as Vietnam and India, which arenow on the radar of foreign manufacturersseeking lower cost business environments and

anticipated as R&D activities reach levelsachieved in more advanced economies.

To capitalise on China’s R&D potential andimproving productivity, an increasing number ofIT and pharmaceutical companies haveopened their R&D centres in China. Accordingto Xinhua news, 400 out of the world’s 500largest MNCs have already invested andestablished more than a thousand R&Dcentres in China.

The aggressive expansion of MNCs hasresulted in China becoming the third mostactive R&D hub after the US and UK. In asurvey by the Thomson Group and EIU back in2006 of 165 senior managers, 48% ofrespondents declared that China will be thekey market for future R&D activity over thecoming three years, compared to 24% forIndia, 22% for the USA and 21% for Europe.

R&D activities are being actively encouragedby central government. Since the 9th Five YearPlan (FYP, 1996-2000), the government hasinvested hugely in supporting education and hi-tech industries in order to leverage thecapabilities of R&D. Over USD 10 billion hasbeen invested by the China Development Bankin 2007 alone. This has translated into animprovement of both labour quality andinnovation capacity. The numbers enrolled inuniversity education has increased by eight-fold over the past 10 years. Moreover, returneeChinese are also contributing to a markedimprovement in business management skills.

The number of registered patents hasincreased from 22,588 in 1990 to 352,000 in2007. As a consequence, the contribution ofthe R&D sector to the total economy has risento nearly 1.5% in 2007 compared with lessthan 1% 10 years ago. Further strong growth is

Future Engines of GrowthR&D Expenditure (% of GDP)

Moving up the Value Chain

A Global R&D Hub -From ‘Made in China’ to ‘Invented in China’

BPO activities include IT Services, HR, Customer Services, Operations (e.g. Investment, Legal), Training, Financial and Accounting, Procurement

Demand Drivers

DriversR&D Activities

BPO Activities

Regional Headquarters

Corporate Expansion and Cost

Reduction

Industry Positioning

New Business Park Occupiers

BenefactorsMNCS

New Set up and Expansion

Local Companies

New Set up and Expansion

Market HotspotsShanghai

Dalian

Chengdu

Hangzhou

Nanjing

Tianjin

Wuhan

Qingdao

Beijing

Guangzhou

Shenzhen

Xian

Suzhou

Jinan

Chongqing

Japan

US

EU15

UK

China

India

Source: OECD Factbook 2007

Source: China Statistics Office

0 .0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Registered Patent Numbers

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

01990 1995 2000 2005 2006 2007

The business parkmarket in China ispoised for strong

growth, as a number ofmacro-economic and

business factorscombine to produce theconditions for ‘lift-off’



Business Process Outsourcing (including ITServices, HR, Customer Services, Operations, e.g.Investment, Legal, Training, Financial andAccounting, Procurement), a primary user ofbusiness park space, is actively being targeted aspart of the central government’s plan to move theeconomy up the value chain. The governmentaims both to attract global knowledge basedindustries, as well as foster the organic growth ofcompanies that already have operations in China.Their specific objectives have been to:

• Establish 10 competitive BPO bases acrossChina during the 11th 5YP• Double BPO export volumes between 2005 and2010• Win BPO business from 100 leading global firms• Cultivate 1,000 BPO firms with globalcertifications

Initially five cities were authorized as BPO basesin November 2006 – namely Dalian, Chengdu,Shanghai, Shenzhen and Xian. These five citieswere subsequently joined by another six cities inDecember 2006 – Beijing, Hangzhou, Jinan,Nanjing, Tianjin and Wuhan. A further three citieshave recently been announced – Changsha,Guangzhou and Hefei. Other financial supporthas also been introduced through a USD 1.3billion Chinese-Singaporean private equity fund,which will provide easy financing for hi-techcompanies in these cities.

The government’s proactive encouragement ofBPO activities, together with MNCs’ ongoing globalpursuit of cost-effective locations has resulted invery strong expansion in the BPO sector, growingeven faster than India (which accounts for almostfor 60% of the global BPO market). According tojoint research by McKinsey and EDS (a leadingglobal technology services company), the BPOsector in China will see annual growth of almost30% with a turnover of USD 18 billion by 2010,growing to USD 56 billion by 2015.

High infrastructure investment (20% of China’stotal investment is on infrastructure compared toonly 6% in India), the high quality labour supply,competitive costs and strong government supporthave all laid a solid foundation for the future growthin BPO activities in China. As a result, the countryis expected to win market share from India.

China has already succeeded in developing BPOactivities targeted at Japan, which accounts for70% of current business. For example, HP has setup a call centre in Dalian to tap into its locallanguage skills to service the Japanese market,while IBM have announced plans to increase itsJapanese back office operations from 2000 to3,000 people by end 2008. NEC moved 90% of itsBPO business from Japan to China early 2007.

The expansion of foreign BPO companies hashelped cultivate growth in local BPO serviceproviders. Neusoft, the China market leader inBPO business ranks 25th globally (according toIAOP); the company employs more than 10,000people and provides BPO services to more than30 MNCs in Shanghai, Beijing, Chengdu, Nanjingand Shenyang. Isoftstone, another leadingChinese provider of IT outsourcing services hasaligned with Microsoft and will have over 3,000staff in a business park location in North WestBeijing. Isoftstone is also aggressively looking foropportunities in Tier-II cities.

Attracting Regional Headquarters

Regional headquarters of MNCs have gravitated toboth Beijing and Shanghai since the early 2000swhen the municipal governments offered incentives

Growth in BPO Activities rivalling India

The government aimsboth to attract globalknowledge basedindustries, as well asfoster the organicgrowth of companiesthat already haveoperations in China

BPO bases designated by Ministry of Commerce

November 2006Dalian

Chengdu

Shanghai

Shenzhen

Xian

December 2006Beijing

Hangzhou

Jinan

Nanjing

Tianjin

Wuhan

December 2007 - February 2008Changsha (December 2007)

Guangzhou (January 2008)

Hefei (February 2008)

Source: Ministry of Commerce



to attract high value foreign investment. At thesame time, large MNCs were actively moving theirresources and capital globally which translatedinto a ‘HQ relocation wave’ of the 2000s.

For example, Alcatel moved its Asia Pacificheadquarter fromAustralia to Shanghai in 2000,from where it manages 16 Asia Pacific marketsand 22 subsidiaries, as well as R&D centres inChina; HSBC moved its China headquarters fromHong Kong to Lujiazui (located in the CBD) inShanghai in 2000; whilst Kodak relocated itsregional headquarter to Shanghai from Hong Kongto serve the whole Asia Pacific market in 2004.

At a micro-level, local governments have beencourting headquarter functions due to the twinbenefits of tax revenue and profiling, which hasencouraged a shift into business parkaccommodation. It has been estimated that therelocation of one manufacturing-basedheadquarters will stimulate the relocation ofmore than 10 related service firms (Dept ofForeign Investment Administration, Ministry ofCommerce, PRC).

Corporate Expansion and CostReduction

Many domestic and international firms that havebeen active in China for several years arerecording exponential expansion in both turnoverand number of employees, on the back of double-digit economic growth. However, rapid expansionis also occurring at a time of rising cost of doingbusiness in China, and in an increasinglycompetitive global market place, companies areactively seeking ways to reduce their cost baseby reducing real estate costs. In this context,decentralised business parks offer an attractivealternative to CBD office space for cost consciousoccupiers. In Shanghai, for example, the CBD vdecentralised rental differential has widenedsignificantly in recent years, and rents in the CBDare now three times the levels being paid indecentralised business parks.


The Chinese government has established‘industry guides’ for every business park whichidentifies the type of industry that it can operate.As a result, business parks are creating strongindustrial clusters where companies in a similarindustry are operating in close proximity, creatingeconomies of scale and encouraging knowledgesharing. One of the best examples is DalianSoftware Park developed by Software Park China,one of the largest business park developersnationwide. The Dalian Software Park hasattracted nearly 400 hi- tech companies including

leading MNCs such as HP, GE, IBM, Sony, Dell,Toshiba, Microsoft, Oracle and Intel. In Shanghai,Zhangjiang Hi Tech Park is emerging as apharmaceutical hub, housing companies such asNovartis, AZ, GSK and Roche.

The Next Wave of Business ParkOccupiers

While the hi-tech industry in particular has driventhe development of many of China’s currentbusiness parks, developers are looking to thenext wave of occupiers to shape the futuremarket. The financial services sector is expectedto increase its presence in business parks as thesector matures.

According to the Global Financial ServicesOffshoring Report 2007 released by Deloitte in2006, over 75% of major financial institutions inthe world had offshore operations compared toless than 10% back in 2001. This trend isexpected to accelerate over the next few years,and the report highlights that China is likely to beIndia’s principal offshoring competitor.

Such alluring prospects have translated into aquick response from Chinese cities. As aforerunner, Shanghai set up China’s first financialBPO centre in Zhangjiang Hi-tech Park in 2006and the Shanghai municipal government aims tocreate a USD 3 billion financial BPO sector by2010. Dalian has successfully attracted FidelityInternational, a leading provider of financialservices, to launch its back-office operations inthe city. It is also the first foreign fundmanagement group in China to set up back officefunctions, reflecting the country’s rising power asa financial outsourcing centre.


Business Park Occupiers

Business ParkDalian Software Park

Zhangjiang Hi-tech Park

Industry PositioningIT

Pharmaceuticals

Key TenantsHP, GE, IBM, Sony, Dell, Toshiba

Microsoft, Oracle, Intel

Novartis, AZ, GSK, Roche

Source: Jones Lang LaSalle, 2008

Business Park Rent vs. CBD Office Rents, Shanghai

14.0

12.0

10.0

8.0

6.0

2.0

0.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Rent RMB per sqm per day

Puxi (CBD Area)

Pudong (CBD Area)

Business Parks

MicrosoftMicrosoft is investing heavily in their expansion into China,particularly in R&D activities. Rapid expansion is generatingdemand for larger buildings with a better image, goodtransportation and proximity to local universities. Grade-Aofficebuildings in CBD locations no longer meet the needs ofcompanies, and given its large space requirements, locating inthe CBD would significantly increase their occupancy costs.

Microsoft is currently building a 119,000 sq m campus facilityfor 6,000 employees in Zizhu Science Based Park in theMinhang District of Shanghai; Phase I with a total gross floorarea of 38,000 sq m was opened in early 2008. ZizhuScience Based Park provides Microsoft with low-cost land,strong government support, access to rich human resourcesand accommodation costs (including rents and propertymanagement fees), which are estimated to be 70% lowerthan in the CBD.

In Beijing, Microsoft is aggressively expanding its R&Dcapacity. The company already has several research labs inWest Beijing and is currently building a 101,000 sq m R&Dcentre in Zhongguancun (West Zone), due for completion by2010. The new centre, which will be fully owned by Microsoft,will consolidate all research functions in this facility.

In Guangzhou Science City, one of the city’s leadingbusiness park areas, Microsoft (China) Industry Baseoccupies 300,000 sq m. When complete in October 2008,the industry base will include a Microsoft Technology Centrefor South China, an advanced software training centre, abusiness operations centre, as well as an internationalsoftware outsourcing industry base.

EMCEMC, a US Fortune 500 company which designs and buildsinformation infrastructure, has been rapidly expandingthroughout China in recent years with huge investment inR&D and strategic acquisitions. The company’s ShanghaiR&D centre is one of their fastest growing R&D centres inthe world. Evolving from a small office in the Pudong Districtof Shanghai, the R&D centre grew to over 3,900 sq m in just4 years. As a result of the need to accommodate 200 newrecruits each year, EMC relocated to a larger 7,500 sq mR&D centre in Shui On’s Knowledge and InnovationCommunity in Yangpu District, north of the city centre.



Jones Lang LaSalle has identified 15 cities across China where weexpect the business park market to grow strongly due to thecombination of government policy, robust demand drivers, critical massof business park activity and the presence of high quality occupiers

The Geography of Business Parks

They comprise of 12 cities that have beenidentified as BPO hubs by central government,namely: Beijing, Dalian, Chengdu, Guangzhou,Hangzhou, Jinan, Nanjing, Shanghai, Shenzhen,Tianjin, Wuhan and Xian.

We have also added a further three cities to ouranalysis; cities that are also now appearing onthe radar of business park occupiers and wheredevelopment suggests an active business parkmarket emerging: Chongqing, Suzhou andQingdao.

We believe that these 15 cities will set thebenchmark against which future business parkperformance and activity will be measured.

Distribution of Business Park Stock

Of the current estimated business park stock ofapproximately 17 million sq m in China over 60%is concentrated in four cities, each of which has abusiness park stock of over two million sq m:

Shanghai has China’s largest stock of businesspark space at over three million sq m. The highconcentration of MNCs in Shanghai hascontributed to the emergence of back-office andR&D activities. Shanghai’s two most developedbusiness parks, namely Caohejing Hi-tech Parkand Zhangjiang Hi-tech Park are now amongstChina’s most high profile business parks.

Beijing is also one of China’s largest businesspark markets, with a stock of around three millionsq m. Its business park market has grown on theback of the city’s R&D activities and universityinfrastructure. Its premier business parks are Z-Park and Tsinghua Science Park.

Dalian is China’s third largest business parkmarket, which has grown on the back of BPOactivities. Dalian Software Park Phase I has beenactive for a decade and has become a premierhub for IT outsourcing.

Guangzhou’s business park market firstemerged in the Guangzhou Economic andTechnological Development District. Itsestimated 2 million sq m stock positionsGuangzhou as the fourth largest market afterBeijing, Shanghai and Dalian.

The future supply pipeline indicates that the stockis expected to more than double by 2010 to closeto 38 million sq m. Whilst the four largest markets

Business Park Stock 2008

Total Size: 17 million sq m (est)

38.8% 61.2%Shanghai, Beijing,Dalian, Guangzhou

Other Cities

Business Park Stock 2010

Total Size: 38 million sq m (est)

40.3% 59.7%Shanghai, Beijing,Dalian, Guangzhou

Other Cities

Business Park Stock

Stock 2008

>2 million sq mShanghai, Beijing, Dalian, Guangzhou

700,000-1 million sq mSuzhou, Nanjing, Chengdu, TianjinJinan, Hangzhou

500,000-700,000 sq mShenzhen, Xian

<500,000 sq mQingdao, Chongqing, Wuhan

Source: Jones Lang LaSalle. Updated as April 2008



will continue to account for the majority of newdevelopment, some of the largest increases instock are expected to occur in Chengdu, Suzhou,Xian and Tianjin.

Strong Demand Dynamics

The future demand potential for business parkspace in each city is the result of a complexinteraction between sector prospects at a macrolevel, and the relationship between CBD anddecentralised office space at a micro-level. Inprime markets such as Shanghai and Beijing,

ShanghaiShanghai has been China’s market pioneer in thebusiness park sector, with a development history of morethan 10 years. The high concentration of MNCs in the cityhas directly contributed to the rapid expansion of back-offices and R&D centres in Shanghai’s business parks.

Amongst the most well-known business parkdevelopments in Shanghai are: Caohejing Hi-tech Park,Zhangjiang Hi-tech Park, Knowledge and InnovationCommunity, Jinqiao Export Processing Zone, ShibeiIndustrial Park and Zizhu Science Based Park.Infrastructure improvements have played a crucial role inthe successful development of these parks and most arebuilt close to public transportation links.

As China’s most mature real estate market, Shanghai’sbusiness parks have witnessed every phase of thesector’s evolution and they provide a good illustration ofhow the business park landscape in China has changedin recent years. For example, Caohejing was originally acluster of light industrial factories, but is nowtransforming into a modern business park with severalhigh quality projects under construction.

Current business park occupiers in Shanghai are mainlyhigh-tech companies and company back-offices. Overthe next few years, the bulk of new demand is expectedto originate from companies that are aggressivelyplanning to expand in the city. The demand for largespace, the need for consolidation, combined with thelimited choice and rising costs in the CBD are expectedto be the main drivers for corporate relocation to thecity’s business parks.

BeijingThe business park sector in Beijing has emerged primarilyon the back of the city's role as a major R&D hub supportedby the high concentration of university institutions.

Zhongguancun Technology Park (ZTP) is China’s largestbusiness park. It comprises a central park in HaidianDistrict and 9 sub-parks featuring several differentindustries. A number of notable high-tech MNCs have setup their global R&D centres in ZTP, such as Motorola,Ericsson, Nokia and Siemens. Large local large firms havealso boosted business park demand – notably Sohu whichoccupies 13,000 sq m in Tsinghua Science Park in ZTP,UFIDA which occupies around 180,000 sq m in ShangdiYongFang Base, and Lenovo with its Chineseheadquarters and R&D centre opposite Z Park in Shangdi.

Other key business park areas include Electronic City(digital, electronic, telecommunications etc.) and BeijingEconomic-Technological Development Area (high-tech andpharmaceutical industries). Emerging areas includeDaxing Pharmaceutical Park (south of the city centre) andthe airport precinct (Beijing Capital Airport) which isgrowing quickly with substantial developments, such asthe MAX business park in Tianzhu EDZ. The new light raillines, due to be operational by 2015, will aid rapid transitmovement between the airport precinct, BDA, Fengtai,Zhongguancun and Daxing.

End-user demand is strong with MNC occupiers seekinglarge stand-alone properties both for purchase and lease.Local companies are generally looking to purchaseproperties and their requirements are small (typically 500-5,000 sq m stand-alone buildings in campus stylebusiness parks on the city fringes).

The ongoing ‘greening of the city’ is pushing moremanufacturing firms out of the city which are beingreplaced by higher value industry. As a result businessparks are witnessing rising demand particularly from theR&D, pharmaceuticals and hi-tech sectors.

With the emergence of private developers and the entry ofexperienced developers such as Raycom, CapitaLand andFrasers, the Beijing business park market is expected togrow quickly and the standard of accommodation andamenities is expected to rise over the next 2-3 years.

decentralisation trends are driving the market,resulting in a complex occupier mix. In Tier II cities,government initiatives in mapping out a city’seconomic focus are important drivers of demand.

We have reviewed future demand prospectsbased on an assessment of a city’s potential interms of prospects for three main occupieractivities - R&D, BPO and regional headquarters.

Shanghai and Beijing China’s Prime Markets,both perform well across all demand activities,indicating strong and robust demand forbusiness park space. Robust occupier demandin these cities is being supported by the rapidexpansion of R&D activities, growth in back-offices and the decentralisation of businessactivities from CBD locations.

Chengdu, Xian, Hangzhou, Guangzhou andShenzhen also score well on demand drivers.Although Dalian is not especially strong in R&Dor regional headquarter activities, its BPO sectoris renowned as the market leader in China, with620 BPO firms employing 50,000. Labourshortages and increasing costs haveconstrained Dalian’s progress up the valuechain, but we nonetheless believe that withstrong performance in the BPO sector, Dalianwill be continue to be the market leader inentering the next wave of business park activityfocused on financial services.

Tianjin and Qingdao that have largely developedfrom manufacturing bases have lagged the othercities in terms of business park activity. However,their governments are keen to catch up and areaggressively setting out master plans.

China Business Park Hotspots

•Chengdu•Chongqing

•Shenzhen

Wuhan •Hangzhou •Suzhou •

Jinan •

Beijing •

Guangzhou •

•Xian •Nanjing•Qingdao

•Tianjin•Dalian

•Shanghai

Demand Dynamics

Prime Markets

CityShanghai

Beijing

Dalian

Guangzhou

Shenzhen

Hangzhou

Xian

Chengdu

Nanjing

Suzhou

Wuhan

Tianjin

Jinan

Qingdao

Chongqing

Source: Jones Lang LaSalle

R&D

High

High

Low

Medium

Medium

High

High

High

Medium

Low

High

Medium

Medium

Medium

Medium

BPO

High

High

High

High

High

Medium

High

High

Medium

Medium

Medium

Medium

Medium

Low

Low

Headquarters

High

High

Low

High

High

Medium

Medium

High

Medium

Medium

Low

Low

Low

Medium

Low



•DalianDalian is China’s third largest business park market and has been a pioneer in business park

development – its first business park project was completed in 1998. Themarket is mainly driven by

BPO activities. Most of the back-offices in the city have been set up to cater for the requirements of the

Japanese and South Koreanmarkets. Nowmore than 2,000 Japanese firms have expanded their

technical support centres into Dalian – including Panasonic, Sony, Hitachi and Toshiba. Total investment

from Japan reached USD 4.2 billion, which is roughly 10% of total Japanese investment in China.

Dalian Software Park, with a total floorspace of more than one million sq m has become one of the

most high profile BPO parks in China – five out of the top 10 global BPO providers located in the park.

BPO providers include IBMGlobal Services, Accenture, BearingPoint, NEC and HP.

The entrance of large developers such as Ascendas and Shui On Group are expected to improve

market transparency and provide new high quality projects. In 2007, the Shui On Group and

Dalian Yida Group launched Dalian Tiandi Software Hub (DTSH), a mixed-use project of 3.5

million sq m with a 10 year development phase.

•GuangzhouThemarket in Guangzhou first evolved in the 1980s from the manufacturing base of Guangzhou

Development District (GDD). Today GDD includes several comprehensive business park areas –

notably Tianhe Software Park, Haizhu and Panyu areas and Guangzhou Science City. The city’s two

million sq m stock positions Guangzhou as the fourth largest market after Beijing, Shanghai and Dalian.

The main business park areas all have a high concentration of quality occupiers. For example,

Microsoft (China) Industry Base occupies 300,000 sq m in Guangzhou Science City; the industry

base includes a Microsoft Technology Centre for South China, an advanced software training

centre, a business operations centre as well as an international software outsourcing industry base.

Intel’s International Data Security Solution Centre has committed to a 70,000 sq m development in

Guangzhou Hi-tech District, providing accommodation for 6,000 employees.

In order to attract more companies in secondary and tertiary industries, GDD is offering

incentives of up to USD 2.7 million to companies who set up their headquarters in the District.

We expect that government incentives and industry synergies will underpin the strong growth of

Guangzhou’s business park market.

•ShenzhenThe business park market in Shenzhen emerged in the late 1990’s, anchored by the

establishment of the 11.5 sq km Shenzhen Hi-tech industry Park (SHIP). Located in SHIP, the

600,000 sq m Vision (Shenzhen) Business Park (VSBP) is considered to be the highest quality

business park project in the city.

Owned by Frasers Property (a joint venture between Fraser & Neave and Ascendas), VSBP has

been developed in three phases. Phase I (23,500 sq m) and phase II (121,300 sq m) came

online in 2001 and 2006 respectively, while phase III (with a total investment exceeding USD 20

8million) was started in H2 2007. More than 30 well-known high-tech firms occupy space in

VSBP, including Huawei, Zhongxing, Lenovo, Microsoft, TCL, Philips and Epson. As a result of

strong demand, the vacancy rate has fallen to 10%. The developers’ ambition is to transform

VSBP into a ‘World Class R&D Centre’.

•ChengduThe business park sector in Chengdu emerged in 2000, when the government built a number of

office buildings in its industrial zones to attract small high-tech companies. From 2004, supply

increased significantly due to the government’s initiative to support the IT industry.

The high-tech office market in Chengdu currently totals around 750,000 sq m, with tenants

mainly comprising international high tech companies. For example, Tianfu Software Park,

developed by Chengdu Hi-tech Investment Company (a government investment company) has

successfully attracted IBM, Nokia, Synnex and NEC, with average occupancy reaching around

1,000 sq m. For example, Nokia occupies 10,500 sq m in Tianfu Software Park and Accenture

plans to occupy 4,000 sq m in Tianfu Software Park Phase II by mid 2008.

Chengdu’s large talent pool (with annual graduates reaching 105,000 compared to 110,000 in

Shanghai), strong government support and industrial clustering of software, IC and

telecommunications firms, continue to attract companies such as Flextronics, French Ubisoft, and

Kingdee. The business park stock is expected to rise to well over one million sq m by 2010.

•XianRenowned as one of the premier education hubs in China, Xian is a city with rich human

resources and low labour costs. To leverage its inherent advantages, the Xian municipal

government has targeted BPO as a key growth sector. A 400,000 sq m software park has

been built to cater for the needs of BPO businesses. The Xian Software Park is currently

home to 20 BPO companies, which mainly provide back-office processing for industries such

as IT, healthcare and financial services. Companies such as Oracle, SPSS, Sybase,

Neweggs, Infineon, NEC and Applied Materials are present in Xian Software Park. In addition,

CompuPacific International (an American-Chinese outsourcer) has created a BPO and call

centre in a software park deal with New China Life Insurance. To tap into the booming market,

Xian Hi-tech Zone has invested USD 430 million to develop a large BPO base with total space

exceeding one million sq m.

•HangzhouThe business park market in Hangzhou has developed from the cluster of universities (similar

to that of Beijing). The Hi-tech Development Zone in Binjiang District (one of the university

areas in Hangzhou) has traditionally hosted most business park projects. The Hangzhou

Economic & Technological Development Zone in north east Hangzhou is emerging as a new

business park location.

Singapore Science Park, developed jointly by Ascendas and Hangzhou Economic

Development Area Administration, is located in Xiasha satellite town. With a total GFA of

430,000 sq m, the park is expected to host several hundred IT companies and up to 50,000

industry professionals when completed in five to eight years.

Alibaba, which was founded in Hangzhou, announced the development of its Chinese

headquarters, to be located in Binjiang Hi-tech Development Zone with a total site area of

59,000 sq m and employing 9,000 staff when completed in 2009. Huawei Technologies, a

leading Chinese telecom equipment provider, has built a global research and development

centre in Hangzhou with a total area of 250,000 sq m.

•NanjingNanjing Jiangning Science Park and Nanjing Hi-tech Park provide most of the high quality

business park space in the city. Centrally managed, large-scale business park projects did not

appear in the city until 2005 and rents are relatively low at around USD 50 per sq m pa, compared

to USD 157 per sq m pa in Shanghai. Major tenants include Nobel, Samsung and Honeywell.

Satyam, the fourth largest IT company in India, attracted by Nanjing’s skilled labour force and

competitive costs, has signed an agreement with Nanjing Hi-tech Park to set up a global delivery

campus (GDC). It will be the Satyam's largest development facility outside of India. The Nanjing

facility will include areas devoted to development and training as well as a convention centre.

Nanjing’s municipal government is very keen to develop a niche BPO market in the city

targeting the North American market. Aggressive investment in infrastructure and residential

accommodation is expected to support growth in the business park sector.

•SuzhouSuzhou SIP and Suzhou New District have been the dominant players in the high tech office

market to date. Supply is expected to grow significantly in the coming years with the

opening up of new areas, such as the Wuzhong and XiangCheng Districits. Yangtze River

Business Park and SISPAPK Phase 5 with a combined GFA of 1.7 million sq m will provide

the majority of future supply.

Most business park occupiers come from companies who have set up manufacturing bases in

Suzhou, including tenants such as Cisco, Oracle, Canon, Philips and Asus. The city will

continue to benefit from spill over from neighbouring Shanghai. However, rising wages and a

shortage of skilled labour have put pressure on business park development in the city. Hero

Mindmine’s (India’s largest BPO training organisation) recent arrival in Suzhou should help to

alleviate the problem. The new training centre in Suzhou Industrial Park aims to provide 5,000

senior BPO professionals over the next 3 years, which will be a key factor in Suzhou’s ability

to attract more BPO firms.

Transitional Markets

•Chengdu•Chongqing

•Shenzhen

Wuhan•Hangzhou •Suzhou •

Jinan •

Beijing •

Guangzhou •

•Xian •Nanjing•Qingdao

•Tianjin•Dalian

•Shanghai



•TianjinThere is not yet an established business park market in Tianjin. Most business park space is

randomly located in the Huayuan and TEDA areas – Huayuan is the most developed area with two

400,000sq m phases completed and another 600,000 sq m scheduled for future development.

The situation is gradually changing as central and local government support increases. Several high

quality projects are in the pipeline – Tianjin Binhai Service Outsource Industrial Park Phase 1 in TEDA

(developed by Software Park China) will contribute 100,000 sq m of high quality space in 2008, while

local residential developer Tianjin Xinhua Investment Group will develop 200,000 sq m in 2008.

Despite the late start, Tianjin’s municipal government has very aggressive plans to win new

business. The value of the BPO sector is anticipated to reach USD 4 billion by 2010 and the

municipal government plans to allocate USD 6.8 million every year from 2007 until 2010 to fund

talent training programmes relating to the BPO sector. It is likely that Tianjin will be a future star in

the business park sector as the high concentration of MNCs in the city will contribute to the

development of back-office and R&D functions.

•WuhanWuhan is renowned as the ‘Optical Valley of China’ with its intensive research activities.

Microsoft, IBM, Bearingpoint, Accenture, NTT and some domestic outsourcing companies, such

as Beyondsoft, iSoftStone, and KMsoft have established their bases in the city. Infosys, India’s

largest outsourcing company, will move into Optical Valley in 2008. EDS, one of the world’s largest

IT outsourcing service providers, has built a global service centre in Wuhan Optical Valley Park.

Despite high quality tenants, the size of the business park market is relatively small as most

tenants occupy around 100-300 sq m. To differentiate from other cities, Wuhan is repositioning

itself as ‘China's Delivery Centre of Outsourcing Services’, mainly focusing on subcontracting.

For example, EDS’s GSC in Wuhan will take subcontracted services from Shanghai, in addition to

taking orders directly from Europe and North America.

•ChongqingIn Chongqing, there are two industrial parks focusing on the IT and electronics industries, namely

Xiyong Microelectronics Park and New Hi-Tech Park. These parks are characterised by suburban

settings, lower-density buildings and are in close proximity to major transport links. Large

international high-tech firms such as HP, ProMOS Technologies as well as renowned domestic

companies such as Kingdee Software have either leased or bought office and R&D space in these

two business parks.

•QingdaoThe business park market in Qingdao has a relatively short development history of only 2-3 years.

Qingdao Software Park is the main provider of high quality space with Phase I providing 260,000

sq m. Phase II will be developed in five buildings totalling 115,000 sqm.

Several high quality tenants have been active in the market such as Microsoft, Resource Pro

(US), Softbrain (Japan),Trial (Japan) and Interpark (Korea). The Qingdao government is very

ambitious and has allocated a 10 sq km land area in Aoshan (located in Jimo District) to cater for

the software industry. However, land in this area has been designated for commercial use rather

than industrial use.

•JinanThe business park market in Jinan emerged relatively early (in 1997) when the municipal

government provided support to the hi-tech industry. Intellectual Property (IP) protection has been

a key factor in the development of Jinan’s business park market, and has enabled Jinan to

become the second largest IP base in China after Chengdu. The city’s IP protection record has

attracted some 500 top enterprises such as Microsoft, Oracle, LG, Panasonic, Suzuki, NEC, Texas

Instruments and Sanyo. Currently, Jinan Hi-tech Industrial Development Zone and Qilu Software

Park provide most of the high quality business park space in the city.

First Mover Advantage Markets Locations



Business park activity and investment risk have both been assessed in order to position each of the 15cities on a market potential v risk continuum. ABusiness ParkActivity Index has been created to quantifymarket potential and is based on a combined score of current and future supply and demand prospects.An Investment Risk Index has been created on the basis of real estate transparency, legal systems,government familiarity, market penetration, leasing risk and land price/availability

Opportunities and Risks - Where to Develop and Invest?

Three groups of cities have been identified, eachof which offers different business parkopportunities and characteristics for occupiers,investors and developers. We believe that thisclassification will set the benchmark for realestate players to assess market opportunitiesover the next decade.

Prime Markets

CharacteristicsCities in this group score well in terms of marketsize, industry clusters and strength of futuredemand. Their improving transparency reflectsthe growing activity of international players,which has led to intense competition and land

price increases. These cities will be the primaryfocus of developer and investor interest over theshort to medium term.

CitiesThis group comprises Shanghai and Beijing,which have both been pioneers in the businesspark sector in terms of the amount and quality ofspace, and the high concentration of majormarket players. Players such as Goodman, ShuiOn and CapitaLand have been active in themarket for several years. The healthy marketfundamentals have also attracted interest fromthose locally based companies traditionallyinvolved in residential and commercial sectors.


CharacteristicsCities in the group have good demandprospects, and business park activity is relativelyhigh due to aggressive government promotionand spill-over effects from maturing markets.Investment risks are modest as land pricesremain relatively low and the markets arebecoming more transparent. Additionally, localgovernments have developed a goodunderstanding of the business park concept.These cities are poised for lift off, and areattracting strong interest from international anddomestic players.

Niche Markets Targeted

Dalian

Chengdu

Guangzhou

Hangzhou

Nanjing

Shenzhen

Suzhou

Xian

IT / Financial Outsourcing targeted on the Japanese and Korean markets

IT/ Financial/Logistics/Medical Outsourcing

Financial/Logistics Outsourcing

IT/Financial BPO/Animation Industry/Telecom Services

IT Outsourcing targeted on the US market

IT/Financial/Logistics Outsourcing targeted on US and European markets

Animation/Logistics Outsourcing and Back Offices

IT Outsourcing/Data Centres/Financial BPO targeted on the Japanese market




CitiesDalian, Guangzhou, Chengdu, Hangzhou, Xian,Nanjing, Shenzhen and Suzhou are graduallycatching up with prime markets in terms of thequality of business parks projects and futuremaster planning. These cities are developingtheir niche markets to differentiate themselvesfrom the prime markets. Their localgovernments are aggressively targetingexperienced developers in order to improve thequality of projects.

First Mover Advantage Markets

CharacteristicsThis group of cities currently has lower levels ofbusiness park activity, but the local governments

have aggressive expansion plans (but are notalways clear on the business park concept) andin order to attract high quality tenants and well-known developers, they are offering generousincentives for new entrants. These cities offer‘first-mover-advantages’, with lower land pricesand less competitive environments.

CitiesBusiness parks in Chongqing, Tianjin, Qingdao,Wuhan and Jinan are evolving from theirmanufacturing bases. They have a strongappetite for business park activity. We expectthese cities will quickly catch up on the back ofhigh MNC activity. We believe that Tianjin offersthe best potential to develop as a robustbusiness park market, due to strong governmentsupport and presence of MNCs.

Shanghai and Beijingoffer the lowest riskprofile. They have a

well establishedbusiness park sectorand easily identifiablelarge-scale, centrallymanaged businesspark projects, which

are well supported andclearly understood by

their respectivemunicipal

governments

Investment Strategies

Prime Markets


First MoverAdvantage Markets

Opportunities• Most transparent market

• Most high quality stock

• Robust demand

• Expanding high quality stock

• Improving market transparency and

government familiarity

• Easy access to land

• Low cost

• Less competition

• Generous government incentives

Risks• Strong competition for B-Grade product

• Yield compression

• Difficult to acquire land

• Relatively high vacancy

• Increasingly land and labour cost

• Limited demand

• Lack of master planning

• Few investment grade exist

• Poor infrastructure

• Difficulty attracting and retaining skilled labour

Types of Investors/Developers• New entrants

• Established players

• Risk averse

• In the market for a while and looking for expansion

• Opportunistic investors

• Mostly locally based developers

• Requires higher yields




Understanding RisksOpportunities for investors and developers areextensive across all 15 cities, from prime marketsthrough to transitional and first-mover advantagemarkets. However, understanding a market’s riskprofile will help to define the nature of thebusiness opportunity in each city. We haveassessed risk on the basis of real estatetransparency, legal systems, governmentfamiliarity, market penetration, leasing risk andland price/availability.

Prime Markets

Shanghai and Beijing offer the lowest risk profile.They have a well established business park sectorand easily identifiable large-scale, centrallymanaged business park projects, which are wellsupported and clearly understood by theirrespective municipal governments. Althoughoffering the lowest risks, both cities facecompetitive risks associated with rising land pricesand labour costs. Shanghai for example, has seentransacted industrial land prices soar to over USD320 per sq m, double that of cities such asHangzhou and Suzhou, and almost four timeshigher than in Qingdao and XianFurther increasesin land prices in Shanghai are anticipated due toland supply shortages and increasing demandfrom existing and new occupiers


Transitional markets have a higher risk profile thanprime markets, and currently fall short in terms ofmarket transparency, market penetration andleasing risk. Dalian is facing the specific challengeof leasing risk, as it relies heavily on the BPOsector and has witnessed a slow-down in leasingactivity in newly completed projects.

Other transitional markets such as Guangzhou,Shenzhen, Suzhou, Chengdu, Xian, Nanjing

and Hangzhou have a variety of associatedrisks. Guangzhou, Chengdu and Suzhou haveso far seen limited penetration by internationalplayers. Xian lags behind its peer cities in termsof real estate market transparency. Nanjing andHangzhou have been successful at winning newcompanies, but the typical size of occupation issmall at an average of only 300-500 sq m.

First Mover Advantage Markets

First mover advantage markets, in general, havelower quality stock and more limited demandpotential. Each municipal government has veryaggressive plans to attract business parkactivity; however, a lack of familiarity with thebusiness park concept is often the biggest issuefor these markets. Jinan for example, where theQilu Software Park has been in existence for adecade, has been less successful in attractinglarge MNCs due to the lack of governmentfacilitation. The difficulty in retaining skilledlabour has also become a key issue in thesemarkets. Wuhan, renowned as one of the maineducation bases in China, has recently beenslated for the difficulties in attracting andretaining IT professionals.

Watch List

As well as the 15 hotspots identified in ouranalysis, we are also keeping a watching briefon a further three cities for signs of futurepotential. Changsha and Hefei have bothrecently been approved as national BPO basesby the Ministry of Commerce. Wuxi is alsostarting to show evidence of business parkactivity – the Wuxi municipal government hasbeen proactively promoting the city as abusiness park location and is attracting theinterest of developers such as TecParkDevelopment.

Industrial Land Prices -Government Minimum Posting

City

Shanghai

Beijing

Shenzhen

Guangzhou

Hangzhou

Chengdu

Dalian

Wuhan

Xian

Jinan

Nanjing

Qingdao

Chongqing

Suzhou

Tianjin

Land PriceUSD/sq m

103

103

86

86

69

69

69

69

55

48

41

69/24

69/48

69/48

55/48

RMB/sq m

720

720

600

600

480

480

480

480

384

336

288

480/168

480/336

480/336

384/336

Source: Ministry of Land and Resources (MLR)The land price relates to the main business parksclusters. All the prices are subject to public auction

Government Familiarity Index

HighestShanghai, Beijing, Dalian, XianShenzhen, Chengdu

MediumSuzhou, Guangzhou, WuhanHangzhou, Nanjing, Tianjin, Qingdao

LowestJinan, Chongqing

Source: Jones Lang LaSalle ResearchGovernment Familiarisation relates to both MasterPlanning and Facilitation

Opportunities forinvestors anddevelopers areextensive across all 15cities, from primemarkets through totransitional and first-mover advantagemarkets



Development and Investment Trends

Development Market

As business parks in China have evolved fromindustrial zones, local governments havetraditionally been the largest land owners,managers and developers of business parkspace. Local governments have gaineddevelopment expertise and management skillsfrom external investors, and have successfullygenerated stable income streams rather thanrelying on fees from one-off land transactions.However, the dominance of local governments inthe development process has reduced markettransparency.

The recent liberalisation of the land transferringsystem has triggered growth in private industrialproperty developers. Most domestic developersusually have backgrounds in office or residentialdevelopment, and so far there are few dedicateddomestic business parks developers. Internationaldevelopers, whilst often having significant industrialand business park development experience, havepreferred to partner with local governments ordomestic developers that are familiar with localmarket conditions and regulations.

Key Players

The most active Chinese business park developeris Software Park China, who developed DalianSoftware Park. Ascendas is the most activeinternational player, having had substantialexperience in creating best-in-class business parksacrossAsia. The significant opportunities offered bythe business park market are also attracting largedevelopers such as Shui On and CapitaLand.

Chinese Business Park Developers

Software Park ChinaSoftware Park China, a subsidiary of the YidaGroup and one of the few private sector businesspark developers in China, has emerged as amarket leader. Dalian Software Park, developedby Software Park China, has achieved anexceptional performance over its 10 yeardevelopment period, and is now a role model forthe sector. The successful model has beenreplicated in developments in Suzhou, Wuhan andTianjin. The company’s close relationship withlocal governments, local market knowledge andhigh-quality projects have provided Software ParkChina with a competitive advantage in the market.

RaycomThe real estate arm of Legend Holdings hasincreasingly been an active market player in the

business park sector. Its first project in Beijing -Raycom InfoTech Park, a 328,000 sq mdevelopment - has proved to be very successful,with occupancy rates reaching 90% in early2008. Key tenants include Intel, AMD, Synopsysand Thomson.

TecPark DevelopmentTecPark Development was incorporated in 2007and aims to be the leading IT park developer andoperator in China. With Isoftstone and Office Depotas its anchor tenants, TecPark is aggressivelylooking for opportunities in Tier II cities. They planto move into central-west Chinain 2009. Theircurrent projects are in Tianjin and Wuxi.

The recentliberalisation of theland transferring

system has triggeredgrowth in privateindustrial property

developers

Active Real Estate Players

DevelopersAscendas

Goodman

Frasers Property

Shui On

CapitaLand

Software Park China(subsidiary of the Yida Group)

Raycom(Real Estate arm of Legend Holdings)

TecPark Development

Locations ActiveNanjing, Hangzhou, Dalian, Xian

Shanghai, Beijing

Beijing, Shenzhen

Shanghai, Dalian

Shanghai, Beijing

Dalian, Suzhou, Wuhan, Tianjin

Beijing

Tianjin, Wuxi

Target CitiesCities across China

Shanghai, Beijing

n/a

Other Tier II cities

n/a

Guangzhou, Shenzhen, Chongqing, ChengduHangzhou, Xian, Beijing, Shanghai, Nanjing

n/a

Central, West China




Foreign Business Park Developers

AscendasAscendas, a leading provider of business spacesolutions in Asia, is widely recognized for its highquality projects across Asia including SingaporeScience Park; International Tech Park (Bangalore,India) and Carmelray Industrial Park (Laguna,Philippines). Since its entry into China back in1995, Ascendas has developed a number ofbusiness parks projects across four Tier II cities -Nanjing (Ascendas Ihub), Hangzhou (Singapore-Hangzhou Science & Technology Park), Dalian(Dalian Ascendas IT Park) and Xian (AscendasInnovation Hub). Ascendas are currently targetingTier II cities in order to secure market position inthese growth markets.

In July 2007, Ascendas established two Chinafunds amounting to S$ 700 million. These fundsaim to leverage Ascendas’ knowledge of theChina real estate market based on over a decadeof experience in developing and managing qualitybusiness space.

GoodmanGoodman, which through their acquisition ofArlington Securities and Akeler Holdings in 2005 /2006 has established a strong track record ofbusiness park development in Australia, the UKand mainland Europe. In 2000, Goodman brokeground on their first business park project in China- Shanghai Business Park - a project jointlydeveloped with the Caohejing government and for

which Goodman now provides ongoingdevelopment management services. The successof Shanghai Business Park has encouragedexpansion of Goodman’s business park portfolioin China, primarily targeted on Tier I cities.

Frasers PropertyFrasers Property is a Hong Kong listed propertydeveloper, with Frasers & Neave and Ascendasas its two main stakeholders. Frasers havedeveloped two high profile business parks inChina - Vision (Shenzhen) Business Park (VSBP),a 600,000 sq m project located in Shenzhen Hi-tech industry Park (SHIP) and Vision InternationalCentre (VIC) Beijing, located in Tsinghua SciencePark, a 40,000 sq m project developed through ajoint venture with Beijing Tsinghua Science Park.

Large Commercial Developerstargeting the business park sector

Shui OnShui On, which has successfully developed its‘Xintiandi Project’ across five Chinese cities, isalso focusing on business park development. ItsKnowledge and Innovation Community (KIC)project in Shanghai, of which Phase I wascompleted in 2005, containing 23,000 sq m ofoffices and about 100,000 sq m of residential andservice amenities. Modelled on a ‘live-work-play’design concept, KIC is positioned as a moreupscale innovation business park where stronglinkages with local universities (such as Fudan,

Most internationaldevelopers are typicallyquite cautious towardsbusiness parkdevelopment, requiringevidence of robustdemand and/or existingpre-commitments inproven locations



Tongji and Shanghai University of Finance &Economics) are encouraging high-value activities.Shui On’s mixed-use development in Dalian willbe a landmark project when complete in 2017 –the Dalian Tiandi Software Hub (DTSH) mimics itsKIC project in Shanghai, and will incorporate bothresidential, retail and office space.

CapitaLandCapitaLand, which has a large residential andcommercial portfolio, has been aggressivelyinvesting in the business park sector in bothShanghai and Beijing. In 2007, CapitaLandacquired 20,000 sq m of land within MultimediaValley, a business park in the Zhabei District ofShanghai. To tap into the booming market,CapitaLand is teaming up with AustraLandHoldings to develop a mixed use project containingbusiness park space. In 2008, CapitaLand boughtModern Service Complex Building A in Caohejing(Shanghai). This 40,000 sq m office building will becompleted in mid 2008. In Beijing, CapitaLandbought a building in Zhongguancun TechnologyPark, occupied by IBM.

Developers StrategiesMost international developers are typically quitecautious towards business park development,requiring evidence of robust demand and/orexisting pre-commitments in proven locations.Ascendas, however, are aiming for marketleadership and are aggressively expanding acrossTier II cities. Whilst this carries associated risks, it

also brings potentially higher returns through firstmover advantage, and strategically positionsAscendas to benefit from a rapidly expandingmarket. Goodman appears to have adopted amore cautious strategy of focusing on Shanghaiand Beijing, and is participating through JVs withlocal governments. Those developers wherebusiness parks are not their main focus havelargely invested via mixed-use projects, such asShui On’s KIC project and CapitaLand’s Zhabeiproject. This reduces the leasing risks andoperational risks of single use developments.

Development Trends – Innovation ParksDevelopers are looking to move further up thevalue chain and get more return from their land.The higher rents achieved on business parks, asopposed to other industrial uses, are luringdevelopers into business park development.This trend is taking shape in two ways. First, asservice sector activity in Tier I cities matures,some developers are simply buying land inareas that were traditionally manufacturing-oriented and developing them into businessparks. Secondly, innovation parks are beingcreated by developers who are leasinggovernment-owned buildings, refurbishing themand then re-leasing them to higher profiletenants. As the market for more generic hi-techbusiness park accommodation becomessaturated, more developers will follow the leadof Multimedia Valley Shanghai and begintargeting niche markets.

Shanghai Business Park, CaohejingShanghai Business Park is situated in Caohejing in thesouth west of Shanghai. It has been developed byCaohejing Hi-Tech Park and Goodman.

Shanghai Business Park contains a Philips InnovationCampus (a build-to-suit development) and several buildingsfor lease. These buildings are typically three to four storeyshigh, with floor areas ranging from 8,000 to 13,000 sq m.

Success Factors• Location: Situated in a well developed industrial area• Excellent transportation: easy access to metro and bus lines• Large floor plate: > 2,000 sq m• Low building density: < 35%• High green ratio: 40%• Floor plate efficiency: > 70%• Exterior finishes: top quality building materials• Interior finish: raised floors• Management: international management

The quality of this project is rarely seen in the China market.We believe Shanghai Business Park is a true frontrunnerand will be mimicked by other projects.

Zhangjiang Hi-tech Park, ShanghaiZhangjiang Hi-Tech Park is one of China’s most well-knownand high profile business parks. The park was established in1992 and is located in Pudong New District in Shanghai. It isdivided into several functional sub-areas: Technical InnovationZone, High-Tech Industry Zone, Scientific Research andEducation Zone and Residential Zone.

Buildings in Zhangjiang High-Tech Park vary from standardoffice-style buildings such as the German Centre to ‘businessvilla’ buildings such as those in International Office Garden.Currently, business villas and mid-rise office buildings are themainstream in Zhangjiang High-Tech Park. The one notableexception is Zhangjiang Mansion, which is a high-rise building.

Newer office-style buildings constructed since 2004 are moreoften of equivalent quality to CBD office buildings. Low (twoto four storeys) to mid-rise office (five to ten storeys)buildings generally have larger floor plates from 2,000 to4,000 sq m.

Business villas are mainly targeted at small to mid-sizedcompanies that are seeking stand-alone buildings to set uptheir regional headquarters; they are very popular with localcompanies that can use the buildings for client entertainment.Typical floor plates range from 600 to 1,000 sq m, with a GFAof each building of 1,000 to 3,000 sq m.

Success Factors• Large land area• Well defined planning• Easy access to metro station and other infrastructureEastward extension of metro is underway• Well-developed amenities• Residential cluster emerging nearby

Tsinghua Science Park, Beijing (THSP)Located in Beijing's Zhongguancun area (China's ‘SiliconValley’), Tsinghua Science Park is renowned as Beijing'spremier business park project. The park was developed byTsinghua Science Park, a company supported by thegovernment (Beijing Zhongguancun Science Developmentand Beijing State-owned Management).

To date, the 700,000 sq m Tsinghua Science Park hassuccessfully attracted more than 200 high-quality tenants.These include: Microsoft, which occupy 20,000 sq m; SunMicrosystems with 4,000 sq m; EMC with 1,400 sq m andother renowned tenants such as P&G, Google andBroadcom. With strong demand for space in THSP, rents of 5-7 RMB /sq m/day (USD 260-365/ sq m pa) have beenrecorded and have set a new benchmark for high qualitybusiness park projects in Beijing.

Success Factors• Access to a skilled labour force – many universities andresearch institutions are located in the Zhongguancun area• Easy access to Beijing’s ring road and Xizhimen metrostation and other amenities• Strong government support

Best Practice Business Parks



Strong demand, but limited activity

Business parks are attracting increasinginternational investor interest due to strongcompetition and tighter regulations in thecommercial sector, and given the strongunderlying demand from MNCs for decentralisedoffice buildings. GE, Blackstone, MorganStanley, Goldman Sachs and Ping An Insurancehave all expressed interest in the business parkssector, primarily focused on the Tier I cities.

However, with relatively few projects meetinginternational investment standards, there are veryfew examples of actual transactions. LIM boughtFirst Shanghai Business Parks in the MinhangDistrict, and this transaction has been seen asthe only case so far of institutional investment.

Potential Market Exit Options

International investors in China have severaloptions in terms of their future exit strategies:

Strata-titleStrata-title is still the most prevalent exit option inthe market due to the strong end-user demandand value appreciation expectations. Most new

‘SOHO’ style units are being offered for sale asindividual buildings. This option providesinvestors with a quick cash flow to exit themarket.

Sale of an entire business parkproject to another investorThis results in the original investor realising 100%of the project, and is often the preferred strategyfor opportunistic investors who rely heavily oncapital value appreciation. This is an attractiveoption in today’s market where rapid valueappreciation often exceeds developers’expectations.

Placing a business park into a fundThis option is seen as an optimal strategy for coreinvestors that are intending to hold a project togenerate steady cash flows. Some core investorshave expressed an interest in this type of exitstrategy over the longer term.

Converting an asset into a REITThis option is not currently available in China, butis expected to emerge in the near future, and islikely to be attractive to local developers who areseeking options to refinance. Governmentregulations suggest Tianjin may host the firstREIT experiment in China.

Investment MarketApril 2007- Industrial Land underPublic Bidding, Auction

Notice of the Ministry of Land and Resources and theMinistry of Supervision on the Relevant Issues Concerningthe Implementation of the Assignment System of IndustrialLand by Means of Public Bidding, Auction or ‘Hanging outa Shingle’ issued in April 2007.

The notice prescribes that:• Industrial land shall be assigned by means of publicbidding, auction and ‘hanging out a shingle’• In the light of land evaluation results, industrial policiesand the land market situation, the floor price of anassignment shall be determined by a collective decisionThe floor price shall not be lower than the minimum ratespublicized by the state

ImplicationsConcerns that the price of industrial land may rise rapidlyhave been hovering over developers since the new landpolicy was announced. Before the notice, industrial landprices were generally based on negotiation betweendevelopers and local governments. Land costs were opaqueand often very low, and occasionally even zero. Whilst thepolicy is resulting in higher land costs for developers in theshort term, the new policy will benefit investors over thelonger term run as it enhances market transparency.

May 2007- Restraints on DirectForeign Investment in the RealEstate Sector

In May, 2007, the Chinese Ministry of Commerce(MOFCOM) and the State Administration of ForeignExchange (SAFE) jointly issued a new notice titled NoticesGoverning Further Strengthening and Regulating Approvalsand Supervision of Direct Foreign Investment in RealEstate Sector (Circular 50) to further implement theOpinions Governing the Market Access and Administrationof Foreign Investment in Chinese Real Estate Market(Circular 171), issued in July 2006.

According to Circular 171 and the later Circular 50:• Foreign investors must establish foreign-investedenterprises (FIEs) to invest in Chinese real estatedevelopment or operations. An established FIE mustobtain approval from the authorities if it intends to expandbusiness into real estate• A foreign-invested real estate enterprise (FIRE) with aninvestment of no less than RMB 10 million (USD 1.4million) must have registered capital of no less than 50%of its total investment• If a FIRE fails to fully pay the registered capital, or fails toobtain the State-Owned Land Use Certificate, or fails tomake the project development capital to reach 35% of thetotal project investment, it will not be able to obtaindomestic or overseas loans, and the settlement of itsforeign exchange loans will not be approved• Foreign investors are required to obtain land-use rights orbuilding ownership before they apply to set up a FIREdevelopment company in China• Local developers cannot distinguish themselves asforeign enterprises by setting up offshore parentcompanies, or by way of round-trip investment

ImplicationsCircular 171 and Circular 50 convey the intention of theChinese government to control foreign investment inChina’s real estate market. However, It is unlikely thatforeign investment in real estate will slow down as a resultof this policy, although new entrants will meet greaterchallenges in acquiring Chinese real estate.

New Policy at a Glance



The business park sector is now attracting both domesticinternational developers and investors, and this trend is likely tocontinue with improving market transparency and with more highquality projects coming on the market. The strong competition/tighterregulations in commercial property will focus attention on theopportunities in the business park sector

Final Observations

Although the fundamental looks good, there areinevitable risks which need to be factored intoany assessment of business park futures inChina. The market dominated is by governmentinitiatives, and whilst this will serve to boost thesector, it could equally create market distortions.Moreover, municipal governments’ ambition ofdeveloping huge quantities of space in thefuture may lead to over supply due to the lack ofsound planning and promotion.

I am confident in the Chinesemarket. The quality of building

is improving and will continue toimprove. The participation of

international players in themarket who have experience in

low-density, high qualitybuildings will re-enforce the

market in the future.

Colin Clark, Project Delivery Director, Goodman

There is huge potential in thebusiness park sector in China,given the central government’sambitions to upgrade its valuechain to more value addedsectors such as R&D. With moreMNCs setting up R&D centres inChina, combined with theimproving research capability ofdomestic Chinese firms, thefuture demand of business parksshould not be underestimated.However, sustainability will be amain issue in the business parksector in the future.

Chan Wei Siang, V.P, Head of Business

Development, Ascendas China

Looking forward, we are confident that morebusiness park hotspots will emerge asexperienced developers and investorspenetrate further into China. Althoughinvestors are currently adopting a cautiousapproach due to the limited amount ofinternational standard space on the market andthe opaque business environment, they areuniversally confident about growth prospectsover the next five years.

For the purposes of this publication, wedefine business park accommodation onthe basis of the following criteria:

INDUSTRY POSITIONING• The park focuses on specific industries

TARGET SECTORS• R&D, BPO, Headquarters, Call Centres,Back-Offices, Financial Services Centres

LOCATION• Located within an industrial zone• Located in fringe CBD locations whichhave gone through a gentrificationprocess from older factory buildings intohigh-tech/business park type space

BUILDING FEATURES• Normally low-rise, with floor platesbetween 2,000 and 4,000 sq m• Special standards (floor loading, powersupply, A/C system, server room)• Lower plot ratio• Normally ‘bare shell’

LAND USE RIGHTS• Industrial, mixed-use, educational

TAX INCENTIVES• Favourable policies and tax incentivesaccording to industry positioning

‘Industry Positioning’ is considered themost important feature. If a project fulfilsfour out of the six features, they aredefined as a business park.


Business Parks - Definition

COPYRIGHT © JONES LANG LASALLE IP, INC. 2008. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent ofJones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors.

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SHENZHENUnits 3807-09Excellence Times Square BuildingYitian Road, Futian District,Shenzhen 518048Tel: + 86 755 2399 6138Fax: + 86 755 2399 5138

TAIPEI20F-1 Taipei 101 TowerNo. 7, Xinyi Road Section 5Taipei 11049TaiwanTel: +886 2 8758 9898Fax: +886 2 8758 9899

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Contacts

For a copy of the full report on ChinaBusiness Parks and for moreinformation on how Jones Lang LaSallecan assist you in this rapidly evolvingmarket, please contact:

Jileen LooHead of Business Parks ChinaJones Lang LaSalle (Shanghai)Tel: + 86 21 6133 5339email: [email protected]

Contributors

Stuart RossHead of Industrial ChinaJones Lang LaSalle (Shanghai)Tel: + 86 21 6133 5757email: [email protected]

Tammy TangHead of Consultancy, Industrial ChinaJones Lang LaSalle (Shanghai)Tel: + 86 21 6133 5344email: [email protected]

Kenny HoHead of Research ChinaJones Lang LaSalle (Shanghai)Tel: + 86 21 6133 5450email: [email protected]

Daniel GardnerWorld Winning Cities Research ChinaJones Lang LaSalle (Shanghai)Tel: + 86 21 6133 5455email: [email protected]

Wayne WangAssistant Manager ResearchJones Lang LaSalle (Shanghai)Tel: + 86 21 6133 5444email: [email protected]

Jeremy KellyWorld Winning Cities Research DirectorJones Lang LaSalle (London)Tel: + 44 20 3147 1199email: [email protected]

We would also like to thankYanyan Yang for her major contributionto the China Business Parks researchprogramme

Real value in a changing world

June 2008

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