The Shekou Logistics Center

Shekou, Shenzhen, China

Project Type: Commercial/Industrial

Case No: C029004

Year: 1999

SUMMARY A two-story, 236,624-square-foot, western-style office/warehouse project, developed in the southwest Shenzhen special economic zone on the eastern edge of the Pearl River delta in south China. The export/regional distribution center is served by the national railway system, major expressways, and major deep-water cargo and container ports.

FEATURES

The most high-tech, high-quality office/warehouse space in China Dock-high loading platforms on both floors High-clearance ceiling height Wide column spacing Automatic sprinkler system and fire compartmentalization The Shekou Logistics Center

Shekou, Shenzhen, China

Project Type: Industrial/Office Building

Volume 29 Number 04

January-March 1999

Case Number: C029004

PROJECT TYPE

A two-story, 236,624-square-foot, western-style office/warehouse project, developed in the southwest Shenzhen special economic zone on the eastern edge of the Pearl River delta in south China. The export/regional distribution center is served by the national railway system, major expressways, and major deep-water cargo and container ports.

SPECIAL FEATURES

The most high-tech, high-quality office/warehouse space in China Dock-high loading platforms on both floors High-clearance ceiling height Wide column spacing Automatic sprinkler system and fire compartmentalization

OWNER/DEVELOPER/MANAGER

China Distri-Park Limited Tower II, Suite 802, Lippo Centre 89 Queensway, Admiralty Hong Kong 011 852 2525-9180 Fax: 2840-1570

ARCHITECTS/ASSOCIATES

RMJM Hong Kong Limited Architects, Planners & Engineers 21st Floor, Pacific Plaza 410 Des Voeux Road W., Hong Kong 011 852 2548-1698

Ove Arup & Partners Structural Engineers/Quality Evaluators 56th Floor, Hopewell Centre 183 Queen's Road E, Hong Kong 011 852 2528-3031

Levett & Bailey Chartered Quantity Surveyors 11th Floor, Asian House 1 Hennessey Road, Hong Kong 011 852 2823-1823 GENERAL DESCRIPTION

The $12 million Shekou Logistics Center is a modern office/warehouse facility developed in the Shenzhen special economic zone, the export platform for the south China region established under China's economic reform and open door policy.

The facility was developed and is managed by China Distri-Park Limited (CDP), a fifty/fifty joint venture of Crow Holdings International, an affiliate of the Trammell Crow Group of Companies, and Prudential Asset Management Group, the equity investment arm of the Prudential Insurance Company of America.

Minority investment partners include China Merchants Group, the oldest state-owned enterprise in China, which developed and owns the Shekou Port; China Merchants Shekou Industrial Zone Real Estate Co., which has developed nearly 8.5 million square feet of space in Shekou, including major infrastructure projects; and China Merchants Shekou Port Service Co. Ltd., a public company listed on the Shenzhen and Singapore stock exchanges engaged primarily in the operation and management of the Shekou Port.

The project, completed in April 1998, is the first of 20 regional distribution centers being planned on the mainland during the next five years. It sets the tone for CDP's future industrial developments in China; the company plans to develop high-quality, modern warehouses in major markets throughout China. CDP also will manage the property and lease space to multinational corporations and to international distribution and logistics companies.

SITE AND DEVELOPMENT PROCESS

The 236,624-square-foot Shekou Logistics Center sits on a five-acre site in Guangdong Province in south China. It is just two kilometers from the Shekou Container Terminals at Shekou Port, the busiest cargo and container port in south China, and it is directly adjacent to the Ping Nan Railroad, which connects the logistics center with the national rail system. The site is just 20 nautical miles from Hong Kong, 24 kilometers (15 miles) from Shenzhen International Airport, and 10 kilometers (6 miles) from the Guangzhou-Shenzhen superhighway. It also is close to the major deep-water cargo and container ports of Chiwan and Yantian. Site selection was based on proximity to these primary transportation nodes. The flat-graded site lies in the midst of small foothills and is served by streets on three sides of the building.

In 1996 Crow Holdings International began talks with the Prudential Insurance Company of America, the major equity investor, to take the concept of modern industrial buildings like the Shekou Logistics Center to all of mainland China. Other partners from Hong Kong and China were then brought in to provide familiarity with local regulations and contact with local authorities. This was essential to facilitating the lengthy process of review and approval, which included project application, registration, and approval; land use agreement and development permit application; approval of project site plan, preliminary design, and extended preliminary design; government-level approvals, e.g., of fire service and environmental impact; and work commencement application and permit, construction permit, and completion certificate.

To smooth the process further and avoid unnecessary delays, a team of local architects and associates was retained to work on planning and design while capitalizing on Trammell Crow's experience and expertise.

PLANNING AND DESIGN

The two-story office/warehouse center is a reinforced concrete structure with a gross floor area of 21,948 square meters (236,624 square feet). The modern, western-style building features dock-high loading platforms, wide column spacing, and high-clearance ceiling heights on both floors as well as designer-quality office space. One-way ramps are constructed on both sides of the building to accommodate 45-foot container trailers on both floors.

The first floor has a cross-dock configuration with a ceiling clearance height of 7 meters (23 feet) while the second floor has a front-load design with a ceiling clearance height of 8.6 (28 feet) meters. Typical bay size is 13 meters by 13.8 meters (42 feet 8 inches by 45 feet 4 inches). Floor loading capacity is 1,200 pounds per square foot on the first floor and 500 pounds per square foot on the second floor. Office space is located above the warehouse on both floors to maximize storage space and provide an overhead view of the working area from the office space.

The development represents the latest in high-tech, high-quality industrial warehouse space in China. Most competing projects are metal buildings with low clearance heights, narrow column spacing, grade-level doors, and little or no good-quality office space.

FINANCING, MARKETING, AND MANAGEMENT

The Bank of China provided 50 percent of the financing for the Shekou Logistics Center. Trammell Crow, Prudential, and the other investment partners put up the remaining 50 percent. China Distri-Park Limited owns and manages the facility. CDP plans to start four to five similar facilities per year for five years and then to seek a listing on a major public market either in the United States or in Asia.

Marketing studies indicated that it was considerably less expensive for operators in Hong Kong to transport their goods across the border, store them at Shekou, and then ship them back to Hong Kong, saving Hong Kong-based tenants 20 percent in storage and transport costs. Exporting directly out of China rather than through Hong Kong provides big savings on shipping, storage, and customs. Accordingly, the Shekou complex was developed to serve as a consolidation and export center for mainland China and Hong Kong manufacturers and suppliers using the nearby Shekou container port.

Although the Crow Holdings International contacts were of great help, the local nature of the tenant roster required routine tenant identification, direct mail, and follow-up procedures. Because the development is an export center, logistics operators/consolidators were identified as the primary market. In addition, project signage, advertising in Chinese and English media, a Chinese third-party real estate service company, various presentations, and a Web site were used.

First-floor rents are based on the individual tenant's ratio of office to warehouse space. Office rent averages $14 per square foot, and warehouse rent averages $9 per square foot. United States Consolidation Ltd., a major consolidator, leases the entire ground floor of the bonded facility. The average length of lease is three to five years.

China Distri-Park's basic management philosophy is to provide tenants with all the support needed to prosper, through building function, personal contacts, and so forth. CDP seeks to serve its tenants throughout China and to develop build-to-suits for major multinational companies and logistics operators as they grow.

EXPERIENCE GAINED

Finding the right partners is essential in developing abroad, especially in Asia. Securing partners with the right connections is necessary to facilitate the development process in China. A well-capitalized venture is critical given the turbulence in global money markets. Development abroad is management intensive. Be ready for the unexpected—it will happen. The approval process in many countries undergoing transition to a market economy, like China, is especially arduous. The typical development timetable in China for this type of building is approximately 18 months from start to finish, with nine to ten months for paperwork and approvals. Development in China is extremely difficult and time consuming. However, most things can be achieved with the right connections and a realistic timetable. The Chinese are adaptable and capable of producing a high-quality product when provided the technology and the management system. PROJECT DATA LAND USE INFORMATION Site area: 218,616 square feet Gross building area: 236,624 square feet Floor/area ratio: 1.08

Net leasable area Office: 10,000 square feet Warehouse/industrial: 226,000 square feet

Number of floors: 2 Clear height: 23 feet by 28 feet Bay size: 42 feet 8 inches by 45 feet 4 inches

Number of loading platforms: 36

TENANT INFORMATION Annual rents Office: $14 to $15 per square foot Warehouse: $8.50 to $9.30 per square foot

Average length of lease: Three to five years Annual gross income: Approximately $3,300,000

DEVELOPMENT COST INFORMATION Site acquisition cost: $2,360,000

Construction costs Footings and foundations: $890,000 Superstructure: 4,720,000 Waterproofing: 222,000 Fire construction: 265,000 Electrical: 134,000 Elevators: 60,000 Contingency and other: 444,000 Total: $6,735,000

Soft costs Professional fees: $535,000 Project management: 420,000 Leasing/marketing: 600,000 Construction interest and fees: 650,000 Office expenses and other: 690,000 Total: $2,895,000

Total development cost: $11,990,000

DEVELOPMENT SCHEDULE Site purchased: November 1996 Planning started: November 1995 Construction started: January, 1997 Leasing started: November 1996 Project completed: April 1998

DIRECTIONS

From Hong Kong International Airport: To Shekou via the Kowloon-Shenzhen superhighway. From Shenzhen International Airport: To Shekou via the Guangzhou-Shenzhen superhighway.

Driving time: Approximately 45 minutes.

Report authors: Ginnie Sharkawy, ASID, and M. Atef Sharkawy, Coordinator, Graduate Programs in Land Development, Texas A&M University, College Station, Texas

Co-author: Ben Cornish A collaborative effort between the College of Architecture, Texas A&M University, and China Distri-Park Limited.

David A. Mulvihill, editor, Project Reference Files Eileen Hughes, managing editor

This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI-the Urban Land Institute.

Copyright © 1999 by ULI-the Urban Land Institute 1025 Thomas Jefferson Street, N.W. Suite 500 West, Washington D.C. 20007-5201 The Shekou Logistics Center caters to exporters using the city's nearby container port. It is the first of about 20 such warehouse and distribution centers planned for major cities and seaports in mainland China. View of first-floor loading docks. Both floors have dock-high loading platforms. The Shekou Logistics Center is located only two kilometers (1.2 miles) from the Shekou Container Terminals at Shekou port, the busiest cargo and container port in south China. The second-floor loading docks, accessed by one-way ramps, can easily accommodate 45-foot container trailers. Master plan. Level-two floor plan. Cross sections.