How can China’s growth affect your bottom line?

China /

China’s dynamic real estate market has long dazzled and daunted with its extraordinary transformation.

Its infrastructure boom has spawned dozens of modern, well-connected metropolises, with five Chinese cities ranking among the world’s 30 most dynamic business hubs in JLL’s City Momentum Index 2017.

Its property demand was so ebullient for most of the past decade, that developers were often more concerned about how fast they could build projects than how to fill them. Now, more dramatic changes are underway with China’s changing economy, pressuring its cities and property players to overhaul their old business models quickly to keep up.

For those who adapt well to China’s new normal of slower but more sustainable development, lucrative opportunities are ripe for picking.

Are you ready to jump on the bandwagon?

Economic reform provides endless opportunities

After a decade of double-digit GDP growth rates driven by massive infrastructure investment, China’s economic expansion has moderated in recent years to 6.7 percent in 2016. Economists reckon annual growth rates could trend at 5 percent to 6 percent over the next decade, down from the average annual growth rate of over 9 percent over the past 25 years.

China bears worry that this slowdown, along with the government’s recent moves to curb asset bubbles and high debt levels, could weigh heavily on the property sector’s longer-term prospects.

However, there is ample reason to expect China will remain “one of the world’s most dynamic real estate markets,” says KK Fung, Managing Director of JLL Greater China.

For one, the country is making a momentous shift from fast growth to “smart growth,” as highlighted by a 2015 study that comprehensively analyzed the rise of China’s 60 secondary and tertiary cities. With China reforming toward a higher-value economy and opening its services sector such as finance, e-commerce, healthcare and technology, the opportunities are endless for businesses, such as yours.

The opportunities that the reforms bring will unleash a new torrent of domestic and international corporations hungry for quality office space. As this demand shoots up, total requirement for Grade A office space across China’s top 20 cities is predicted to hit nearly 80 million square meters by 2025.

This could be a good time to think about expanding your footprint or taking that step toward setting up operations in China if your business is not already there.

Increasing options in “New-World Cities”

According to the report, JLL expects China60 to remain among the fastest-growing economies on the planet, generating 15 percent of global growth over the decade to 2025. And these cities are entering a new era of competitiveness. Gone are the days when developers could construct scores of generic offices and malls to boost GDP statistics, and blithely expect a flood of occupants.

“The hype has subsided and the ‘build it and they will come’ approach is no longer a viable business model,” says Fung.

China60’s future success will depend on their ability to transform into “New World-Cities”, characterized by qualitative aspects such as environmental conditions, robust industry clusters, and a unique “buzz” that makes them attractive to both talent and businesses.

Developers are listening closely to the wants and needs of corporates and the real estate market is now to your advantage with a greater variety of office space to choose from.

The property market is yours to shape

China’s cities have been woefully lacking in variation so far. Rather than relying on top-down, state-directed development, these cities will have to develop their own competitive advantages in response to market forces.

This is where your company can play a major part—by offering urban solutions that shape China cities’ cultural expression, architectural identity, and innovative design.

“Our mantra at JLL is that real estate is a contributor, rather than just a consequence of a successful, innovation-oriented city,” note Jeremy Kelly (Global Head of Research Programs at JLL) and Jie Li (Head of Strategic Consulting, China Managing Director at JLL), the co-authors of a 2015 report on Wuhan—An Emerging World City.

An example is China millennials’ emphasis on more sophisticated work environments. In response that is also in line with most organizations’ strategy to attract talent, occupiers are more likely to look for offices with filtered air and intelligent workspaces. To meet this demand, developers are focusing on providing workspaces with clean air and smart technologies.

Over in vibrant entrepreneurial hubs like Beijing, startups are shaping the real estate environment by driving new solutions such as co-working spaces which allow them efficiently utilize space, while encouraging collaboration and innovation.

The need for strategic planning and expertise

These changes in China’s new era of “smart growth” make it imperative for your organization to strategically plan ahead.

“Today’s market requires stronger discipline and much more robust planning and decision-making,” says Fung. “It also needs deeper commitment from the real estate industry to making China’s cities more productive, livable, resilient and sustainable.”

How can you navigate this increasingly complex landscape? We recommend for you to consider partnering with a trusted advisor to take the right steps to maximize your portfolios.

Interested to find out more about Future of Work? Learn more about our outlook on the changing world of work here.

To understand how China is moving from fast growth to smart growth, read the full report.