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REAL ESTATE: China60, New Smart Urban Growth
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China60: New Smart Urban Growth

By Chelsea Cai, Senior Analyst, JLL Tianjin

China's development of its urban landscape has undergone a rapid and extensive transformation. Leading much of the development at the start of the 21st century have been Beijing and Shanghai. But in recent years growth has been spurred by China's second and third tier cities. Tianjin is a prime example of how fast cities evolve in China. Each year the city opens several new hotels, shopping malls and office towers. In JLL's newly released report, China60: From Fast Growth to Smart Growth, we identify major trends occurring in many of the country's largest cities and indicate where retailers, developers, investors and occupiers should be looking for opportunities.

BT 201505 23 Real estate 001Source: JLL

Every few years, JLL publishes a report on the evolution of China's cities and the major trends happening in these markets. Our China30 report in 2007, China40 in 2009 and China50 in 2012 charted a remarkable journey of unprecedented city-building and modernization, double-digit economic growth, massive infrastructure investment and unbridled corporate expansion. In this year's report, the key takeaway is that the country's landscape has changed as China moves from fast, investment-fuelled growth to a more sustainable model of higher-value, consumption-based growth. As a result, China's cities have entered a new cycle of consolidation and smarter development. China's Alpha cities - Shanghai and Beijing - have maintained considerable distance from the China60. As they become truly globalized economies, they are setting new benchmarks, sitting among the world's top ten city economies in terms of scale, status and commercial attraction.

-China60's Tier 1.5 cities have cemented their positions as thriving regional commercial hubs. These nine cities are now firmly on the international map and are developing their global profiles. Tianjin, Chongqing, Chengdu and Wuhan are among the world's fastest-growing large cities. Xi'an joins the Tier 1.5 group in 2015, having registered one of the quickest rates of growth since the previous study.

-As the balance of economic activity has continued to move inland, cities in the southwest (Kunming and Guiyang), northwest (Xi'an) and central China (Zhengzhou and Shijiazhuang) have recorded some of the strongest advancements on JLL's City Evolution Curve. However, this trend has been more ambiguous than in previous updates, with several coastal cities (such as Xiamen, Wenzhou and Ningbo) also showing above-average gains.

-Mega city-regions are evolving rapidly in China's most densely populated areas. This is particularly the case in the Yangtze River Delta (YRD) (centered on Shanghai) and the Pearl River Delta (PRD) (centered on China's Tier 1 cities of Guangzhou and Shenzhen):

1.The YRD cities have made the greatest economic and real estate progress since 2012, reflecting the predominance of dynamic private enterprises, more advanced supply chains and superior intra-regional connectivity.

2.The PRD cities feature prominently. Improving intra-regional connectivity, a strong technology base and superior "quality of life" measures put this city-region in a good position for future advancement. Shenzhen, for example, is in the World's Top Five in JLL's City Momentum Index.

3.The recently announced plans to integrate Beijing, Tianjin and Hebei Province signal the government's ambition to replicate the regional development of the PRD and YRD in the Bohai Bay area.

As China shifts away from investment-led growth and transitions into the "new normal", many of the China60 cities will continue to grapple with oversupply over the next two to three years. But, with an increasing focus on high-value activities, growth of the consumer classes and huge expansion of domestic private enterprises, cities have the capacity to absorb this excess supply as they grow. Prospects are strongest for the Tier 1.5 cities, such as Tianjin, while smaller cities will need to scale back on their reliance on construction as a source of economic growth.

BT 201505 24 Real estate 003Source: JLL

Despite high construction levels, an under-provision of international grade inventory is still evident in most sectors:

-The Grade A logistics stock in China is less than 30 million sqm, a volume comparable to that in southern California. The equivalent stock across the major markets in the United States is estimated to be five-times larger at around 155 million sqm. While a temporary oversupply is emerging in some locations, China60 is still far from having an adequate stock of modern warehouses.

-JLL predicts a total requirement for Grade A office space across China's top 20 cities of nearly 80 million sqm by 2025, as demand from domestic private enterprises grows.

-Of the 83 million sqm of built shopping malls in China, only 10-15% is estimated to be of international grade. This compares to 405 million sqm in the United States against 235 sqm in China.

BT 201505 24 Real estate 004Looking just at Tianjin we found that the city is a leader in terms of its openness, logistics market, economic performance and retail market potential. The main factors that have led to the city's rise as a leading Tier 1.5 city are:

-Designation as a Free Trade Zone and plans to integrate Hebei and Beijing
-Major logistics hub for northern China
-Improving infrastructure with a recently expanded airport, additional investments in high-speed rail links to other major cities and an expending subway network
-Large seaport with trade links to nearly every major city
-Specialized manufacturing base that continues to attract investment from foreign firms
-International developers entering the market and higher quality stock
-Emerging domestic tourism destination
-Lower land and real estate costs
-Leading universities and higher education institutions

For more detailed information on the China60 and how Tianjin ranks compared to other cities, please visit our website at http://www.jll.com/China60/.


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