In the three years since we published China50, much has changed in China. A new government has taken the economic reins and started the country down the path of rebalancing away from investment-led growth towards a slower but more sustainable consumption growth model. The transition is already well underway and the smarter growth model will boost demand for modern commercial real estate in China’s cities.
So how are we to think about China’s urban future?
What are the main challenges that China’s cities will have to overcome in the medium and longer term?
First, China’s cities will need to utilise the space that has already been built. This should be considered in terms of the China60 growing into their 'new skin’. As the focus of economic development policy turns towards expanding the service sector, it is inevitable that demand for office, retail, warehouse and hotel space will rise. In order to develop the consumption part of the economy, it is necessary to have more middle-class consumers and that happens through creating white-collar jobs. In this regard, JLL has long felt that commercial real estate was on the virtuous side of China’s policy priorities. With that said, as the growth rate slows, a greater discipline will be needed in the development of real estate to more closely align supply with demand.
The policy priority of market forces playing a greater role in the distribution of resources will have major implications for the evolution of China’s cities. In order to prevail in a market-based economy, China’s cities and their leaders will need to think about the unique competitive advantages of their location. Success in this vision of China’s future will be much less dependent on top-down, state-directed development where 'build it and they will come’ has long held sway. There will be less development for the sake of spurring growth and economic activity and more focus on furthering a city’s attractiveness to businesses. These advantages will include the quality or quantity of talent based on outstanding universities, the presence of a robust industry cluster, streamlined administrative procedures that make a particular city easier to operate in, better environmental conditions, and improved 'quality of life’. Whatever the combination of factors will be, in a market-based economy it will be the attractiveness of a location that determines where a business locates and not the direction of a government leader.
Since we published our last report, China’s commitment to combating environmental degradation has taken on a new focus. From a real estate perspective, the opportunity in China has always been to design and construct buildings with sustainability in mind from the outset, rather than to retrofit and upgrade them later. Now is the time for China’s government to make real estate’s role in this a top priority and to bring forth standards for the industry and to see them enforced.
When the 13th Five Year Plan is released in March 2016, we will see China’s priorities and have a clearer understanding of what the future will hold for real estate. We can be confident that whatever those priorities are, real estate will play an important enabling role in improving the liveability of China’s cities as the urbanisation process continues.