China’s new powerhouse: China60
A new generation of emerging Chinese cities represents a whole new frontier for real estate development, according to a study released by JLL this week.
China60, a comprehensive research report that assesses the nature of real estate opportunities across 60 of China’s most important secondary and tertiary cities, maps out China’s emerging business locations and identifies the drivers that are shaping China’s city hierarchy.
Tianjin city, pictured above, heads the list. (Refer to the infographic below for more demographic information on the 60 cities).
The cities comprising China60 equate to the world’s second-largest economy in terms of purchasing power and despite the economic slowdown, are projected to contribute 15 per cent of global growth over the next decade.
“As China60 cities enter a new era of competitiveness, domestically and globally, ‘city brand-building’ will be a defining theme over the next few years,” explains KK Fung, MD for JLL Greater China.
“Quality of life, cultural assets, and environmental considerations are coming to the fore as these cities compete for talent and businesses. The real estate industry will play an important role in making the China60 cities liveable, resilient, and sustainable.”
Fung says these cities are emerging as the new growth engines at a time when China is transitioning from fast growth to smart growth.
“This ‘New Normal’, marked by lower but more sustainable economic growth, means that decision makers in the commercial property industry need to reassess their strategic choices in the light of higher-value growth, which will boost demand for modern commercial real estate across the China60 cities,” he said.
In retail, with a huge influx of new shopping malls, the rapid adoption of e-commerce is also quickly driving the retail sector into uncharted territory.
“But the sector will blaze its own trail as bricks-and-mortar facilities grow in tandem with omni-channel and experiential retailing.”
Jeremy Kelly, JLL’s director in Global Research, said while much of the growth is coming from secondary and tertiary cities in Southwest, Northwest and Central China, the rise of mega city-regions is adding a new complexity to China’s urbanisation.
“Satellite cities in the Yangtze River Delta region, in particular, have shown remarkable growth, thanks to dynamic private enterprises, advanced supply chains, and strong intra-regional connectivity.
“The macro fundamentals to deliver ongoing strong demand for all major commercial real estate sectors over the next few years are evident, and China60 has tremendous capacity to absorb any excess commercial real estate space over the medium term. The demand for office, retail, warehousing, and hotel space will rise in tandem with the shift of economic development towards expanding the service sector.” said Kelly.
“However, following years of rapid economic expansion, China60 cities are currently facing a short-term oversupply. As these markets mature, investors will require stronger discipline and much more robust planning and decision-making.”
The continued growth of the consumer class, now numbering 130 million people in the China60 cities, means the Chinese economy is driven more than ever by domestic consumption. Logistics warehousing will continue to provide exceptional long-term growth opportunities in the China60, underpinned by demand from traditional retail distribution, as well as due to rapid growth in eCommerce and multi-channel retailing.
In the office sector, as the expansion of large private Chinese companies, such as Alibaba, Huawei, and Tencent, reaches a positive tipping point, they are now a distinctly more visible driver of Grade A office demand within the China60. Tier 1.5 markets in particular will benefit from the shift towards high-value activities, and have a favourable outlook for absorption.
In contrast, the hospitality sector has been impacted most severely by the ‘New Normal’ and will go through a period of wholesale structural change as it repositions for future growth, says JLL, which expects the sector to become leaner and fitter.
“It will likely provide some favourable buying opportunities for investors over the next two to three years. Mid-scale and select-service chains are growing quickly.”