Corporate Campuses Driving Business Park Demand in Shanghai

On May 21st, Indian software giant Infosys announced plans to buy land for developing its own US$150mil headquarters in Shanghai. The new facility will be located in the Zizhu Software Park in Pudong (complete details can be found here). This deal is significant for a number of reasons, not least of which is the way that it underscores how the growing scale of business in China is driving demand for business park space in 2011, and how this demand should continue to expand in the coming years.

Since the end of the global financial crisis the network of business parks growing up in the suburbs of the Shanghai have been one of the segments of Shanghai’s commercial real estate market to show the biggest jump in demand. During 2008 and 2009, developers and agents marketing space in business parks struggled with competition from grade A downtown office buildings that were offering space for as little as RMB 5 or 6 per sqm per day.

However, now that the market in China has bounced back, downtown rates have recovered and business park space that leases for RMB 4 per sqm per day now has a place in the market.

A quick look at the FDI figures for the first quarter of 2011 shows services as the new economic wave in China as FDI in the sector surged by 36.4 %, compared to the same period in 2010. Over the same period, FDI in manufacturing increased by only 23.6%, and investment in services accounted for 47.4 percent of total FDI in the first quarter, compared with 45.3 percent for the manufacturing sector.

While this increase in service sector investment will effect China’s economy in many way, it can already be seen in big investments like Infosys’ and as service companies strive to achieve larger scale in China, many of them will be outgrowing the space available in downtown office towers. Many other companies will opt for the flexibility and cost-savings that can be achieved in business parks.

Of course, the improvement of Shanghai’s transport network, including both the subway system and the highway has also made suburban office parks more accessible than they were five years ago, but this is another trend that can be expected continue as the city expands to twenty metro lines by 2020.