Seed of Opportunities

COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Primary Author

Timothy Chen Director | Research | East China +86 21 6141 3550 [email protected]

Jerry Shen Associate Director | Research East China +86 21 6141 3509 [email protected]

Peng Jiang Senior Manager | Research East China +86 21 6141 3509 [email protected]

Yihong Song Manager | Research | East China +86 21 6141 3508 [email protected]

Abby Zheng Senior Analyst | Research | East China +86 21 6141 4336 [email protected]

Don Fan Analyst | Research | East China +86 21 6141 4378 [email protected]

Contributors Dave Chiou Senior Director | Research | China +86 21 6141 3590 [email protected] SEED OF OPPORTUNITIES The China International Import Expo will boost demand for commercial real estate COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2018

Summary & Recommendations 3,600 43% CAGR

As a significant step forward for China’s CIIE is planning to attract over 3,600 foreign From 2012 to 2017, Shanghai’s total retail initiative to open its economy, the launch companies. Of that figure, over 200 will be sales grew at a CAGR of nearly 10% while of China International Import Expo (CIIE) Fortune 500 companies or global leading online retail sales expanded at a CAGR of serves to accelerate the industrial upgrades companies . 43%. and diversify the market entrants in the manufacturing and service sectors. CIIE is planned to attract participants from 15% 300+ km 172 countries, regions and global CIIE will boost China’s e-commerce sector, organizations. Apart from China’s attempt Tariffs on imported vehicles in China have stimulating the demand for logistics parks in to demonstrate a commitment to been cut to 15% since July, 2018. Yangtze River Delta (YRD) cities in a range of globalisation, the CIIE is also a means of 300 to 500 kilometres from Shanghai. encouraging more domestic consumption to boost GDP growth. Coupled with a recent tax cut on disposable income and shipping firms should also be expanding reduced tariffs leading to lower prices, their presence in China, leading to a Zhangjiang more imports will be made available at an higher demand for office space. affordable price to consumers, boosting With 49 foreign headquarters and 138 R&D China’s e-commerce sector. Business parks should also benefit, as centres, Zhangjiang accounted for 15% of out of the 3,600 confirmed companies high-tech parks’ total revenue in Shanghai. With e-commerce likely to get a boost, at CIIE, 25% are in the auto, technology, High-end manufacturing and R&D sectors demand for warehouses is set to increase, and pharmaceutical and bio-technology should benefit from CIIE and will probably leading to a drop in vacancy rates and a industries. We think these sectors will expand their presence in the area. hike in rents for the logistics sector in the expand their business or consider YRD region. With possible increases in setting up offices in China, which should demand, we encourage logistics landlords decrease overall vacancy rates of the to improve their existing tenant profiles to business parks in Shanghai. Hongqiao CBD prop up rents and their asset performance. The logistics sector should see an Hongqiao CBD is the core of the YRD, and has Stimulated by the favourable policies such immediate boost from CIIE, and the as the reduced market access thresholds, attracted over 70 well-known enterprises positive effects will trickle down to locating their headquarters in the area. trading, finance, professional services and office and business parks in the future.

2 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

TABLE OF CONTENTS Page

CIIE: The gateway to China 4

China’s “new round” of opening up 5

Transitioning to domestic consumption with logistics sector as major beneficiary 6 Logistics and warehouses: Policy reforms for auto, medical health and retail sectors should boost development of logistic market in Shanghai and YRD region 7

Top picks and beneficiaries in Shanghai’s logistics market 9

Office demand set to increase from expanded businesses in China 10 Office: Office submarkets likely to benefit from further opening-up measures for trading, finance, professional service, and shipping industries 11

Hongqiao CBD: the centre of the spotlight 13

Hongqiao is an easy pick, but these are the other major benefiting office clusters 14

Shanghai business parks are hubs for manufacturing and technology R&D 15 Business parks: Policies of opening-up should stimulate growth of intelligent automotive equipment, medical equipment and health care industries, boosting demand for Shanghai’s business parks 17

Major business parks in Shanghai expected to benefit from policy measures 18

Conclusions and recommendations 19

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CIIE: THE GATEWAY TO CHINA Figure 1: Trade in goods: Percentage of exhibitors in each sector

On November 5 - 10 China is scheduled to host its first International Consumer Electronics Automobiles Import Expo (CIIE) in Shanghai. The six day event is planned to showcase & Appliances 2% Medical Equipment & 2% China’s support of trade liberalisation and economic globalisation. CIIE is Medical Care Products made up of nine pavilions and occupies 300,000 square metres. More 11% than 3,600 enterprises from 172 countries, regions and global organizations have confirmed their attendance. High-end Intelligent Based on government releases, the Expo is not only the first large-scale Equipment Food & Agricultrual exhibition in the world focusing on imports, but also the only exhibition 12% Products 45% where the exhibits are planned to be 100% imported. It offers a platform Apparel, Accessories & for high-quality products to enter the Chinese market. This Consumer Goods demonstrates that China is more actively opening up market access, and 28% its dedication to convert the market to be more consumer driven. The three parts of the expo consists of: Source: CIIE, Colliers International 1. Country Pavilion For Trade and Investment. This exhibition area is 30,000 square metres, with more than 80 countries attending. Figure 2: Trade in services: Percentage of exhibitors in each 2. Enterprise & Business Exhibition. This exhibition area is 270,000 category square metres, which is divided into trade in goods and trade in services. Others 3% Creative Design 3% Cultural & Education 4% 3. Hongqiao International Trade Forum. Apart from trade and economic development meetings, this conference is planned to Finance 9% Traffic & showcase Hongqiao’s world class office buildings and facilities to the Transportation 29% attending delegates. Professional Services The government’s push for CIIE is a clear indication that the China is 11% shifting to a domestic consumption-driven market. With more imported goods, demand for logistics and warehouses should remain strong. With Tourism Service 15% importers likely to benefit from a growing business, the positive effects TMT 11% should then trickle down to offices and eventually business parks, as Trade & Trade Service 15% importer expand their footprints in China.

Source: CIIE, Colliers International

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China’s “new round” of opening up The Chinese government has been accelerating the process of opening up further open the market and expand imports, which mainly cover the and embracing globalisation. Since the beginning of this year, a series of following three aspects: policies have been launched covering industries like finance, services and 1. Promote CIIE as an import platform, with one stop services to facilitate manufacturing. As a major gateway city in China, Shanghai followed up by trade launching several additional new policies, including ‘100 measures for 2. Lower import tariffs further opening up Shanghai’. For CIIE, the major focus is policies to 3. Swift border clearance with less paperwork required

Figure 3: Policies related to increasing imports

Policies/ Measures Date Location Measures/ Content Relevant Industries

State Council Executive Meeting Countrywide 2018.05.01 • China removes tariffs on all imported drugs Medical and healthcare 15 regions Deepening of the Pilot Program of including Innovative Development of Trade in Services Shanghai 2018.06.01 • Facilitate customs clearance for trade in service related goods Trade in services Announcements of the State Council on Reducing Import Tariffs on Whole Vehicles and Automobile Parts Countrywide • The latest import duties on passenger vehicles have been cut 2018.07.01 Automotive to 15%. Imported duties on auto parts have been cut to 6%.

The Asia-Pacific Trade Agreement –the Second Amendment Countrywide • China has reduced tariffs on imports of a number of products, Agriculture/ Chemistry/ 2018.07.01 including chemicals, agricultural products, medical products, Medical services/ apparel, aluminum, and steel. Apparel/ Manufacturing

State Council Executive Meeting Countrywide • Starting on November 1st, China’s latest tariff cuts are planned to 2018.09.26 cover numerous imported products including machinery, textiles, Manufacturing construction materials, and paper products

• The first CIIE is slated to be held from 5th November to 10th Services/ Medical China International Import Expo 2018.11.5 – Shanghai November at the National Convention & Exhibition centre in services Manufacturing/ 2018.11.10 Shanghai. Apparel/ Agriculture

Source: Public information, consolidated by Colliers International Note: In general, tariff reductions in this document refer to countries other than the U.S.

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From the government’s perspective, CIIE should encourage consumption TRANSITIONING TO DOMESTIC within its borders, reducing seepage of money outside and resulting in more taxes being collected. CONSUMPTION WITH LOGISTICS Figure 4: China outbound tourism expenditure in 2000, 2010, and 2017 SECTOR AS MAJOR BENEFICIARY (USD Billion)

China’s domestic consumption is now a larger slice of the economy, accounting 300 for 39% of total GDP. While investment was the key driver for China’s economic 258 growth, the ongoing trade war will likely impact investment sentiment in the 250 next few quarters. In addition, given China’s push for deleveraging, spending from the government will probably decrease. As a result, domestic consumption 200 to boost GDP growth is likely to be China’s main focus in the years ahead. China has a large consumer base, and the middle class has been expanding 150 rapidly with continued urbanization. The opening of CIIE facilitates increasing the quantity of imported goods, which should in turn generate more demand for e- 100 commerce operators and retailers to seek warehouse spaces in Shanghai and the 55 YRD region at large. The government’s recent initiatives to cut personal income 50 tax by raising tax brackets will likely increase consumers’ disposable income and 13 their purchasing power. In addition, with import tariffs lowered, prices of 0 imports should become more affordable, which is another key support factor for 2000 2010 2017 the logistics sector. Source: World Tourism Organization, Colliers International

Figure 5: Personal income tax bracket comparison before and after the tax reform

(RMB per month) (RMB per month) 45% 45% 90,000 90,000 Threshold: 35% Threshold: 35% 80,000 RMB3,500 80,000 RMB5,000 70,000 70,000 30% 30% 60,000 60,000 50,000 50,000 25% 25% 40,000 40,000 20% 30,000 30,000 20% 20,000 10% 10% 20,000 10,000 3% 10,000 3% 0 0 <=1500 1500 - 4500 - 9000 - 35000 - 55000 - >80000 <=3000 3000 - 12000 - 25000 - 35000 - 55000 - >80000 4500 9000 35000 55000 80000 12000 25000 35000 55000 80000 (Tax bracket, RMB per month) (Tax bracket, RMB per month)

6 Source: State Administration of Taxation, Colliers International COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Logistics and warehouses: Policy reforms for the auto, medical health and retail sectors should boost development of the logistics market in Shanghai and YRD region The opening of CIIE provides a broad platform for overseas enterprises to With increased consumption, the development of the cross-border showcase their most advanced technologies and products in the fields of auto e-commerce industry should increase, likely generating more demand for manufacturing, medical health, clothing, food and electronics. It will likely play the logistics property market in the YRD region. Companies with a a key role in spurring domestic consumption and the development of the “Business to Business to Customer” model should see their demand for advanced auto manufacturing and medical health industries as well as bonded logistics properties increased in Shanghai’s free trade zones spurring new retailing models which take advantage of technologies including including Waigaoqiao and Shanghai Pudong International Airport. artificial intelligence and virtual reality. Additionally, overseas automakers and medical instrument manufacturers Driven by increased demand for imported goods due to the CIIE and also the will probably be encouraged to invest in Shanghai, driven by the increased reduced import tariffs, we expect more and more international retailers to market access, tariff cuts and favourable policies for land transfer. As a expand their presence in Shanghai and the YRD region at large. As a result, the result, the demand for logistics properties is likely to increase from foreign existing retail brand mixes in Shanghai should become more diverse, thereby auto and medical health dealers and manufacturers. increasing consumer spending. The middle class’ desire for luxury retail brands and imported cars will likely increase as well.

Figure 6: Policies impacting the Shanghai logistics market Industry Main policies and measures Key coverage Major Industrial Parks Special Management Measures for the • Remove the entry limits for overseas commercial and Access of Foreign Investment (Negative passenger automakers by 2020 and 2022 respectively Lower market List) • Remove the foreign stake limits in the auto manufacturing thresholds 100 measures for opening up Shanghai industry wider • Boost the R&D and production of new energy and intelligent • Lingang Auto 13th Five year plan for manufacturing connected vehicles (ICV) • Waigaoqiao • Jiading Announcements of the State Council on • Import duties on passenger vehicles and auto parts to be cut Increase imports Reducing Import Tariffs on Whole to 15% and 6% respectively. Vehicles and Automobile Parts

100 measures for opening up Shanghai • Promote the construction of a port terminal focused on wider pharmaceuticals and medical instruments • Putuo Medical health Increase imports • Pudong PVG • Cancel the tariffs on 28 kinds of anticancer drugs and State Council’s 4th Executive Meeting imported innovative drugs since 1 May 2018

• Total retail sales contributions to the economic growth to hit • Pudong PVG over 60% by 2020 3-year plan to build Shanghai into an • Pudong Jinqiao Retail Increase imports • Develop leading enterprises in the fields of new retailing, international consumer city (2018-2020) • Putuo cross-border e-commerce and logistic supply chains • Introduce more international luxury brands

7 Source: Public information, consolidated by Colliers International COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Figure 7: Logistics parks likely to be the major beneficiaries of policy measures

Stock 823,000 sq m Rent RMB1.65 psm per day Industry international trade, modern logistics, Stock 457,000 sq m advanced manufacturing Rent RMB1.57 psm per day Key Cummins, Mitsui O.S.K. Lines, DHL, DSV Stock 324,000 sq m Industry electronic information, Tenants Rent RMB1.57 psm per day auto parts Industry electronic component, industrial parts, Key Tenants MI, Taobao, JD, Santa Fe medical instruments Key China Post, DHL, Dongsong Healthcare & Waigaoqiao Tenants Technology, Atlas Copco Qingpu

PVG 长宁

Stock 572,000徐汇 sq m Rent RMB1.34 psm per day Industry manufacturing processing, chemical and pharmaceutical, textile fibers Stock 1.35 million sq m Key Suning, China Merchants, Best Logistics Rent RMB1.27 psm per day Tenants Stock 110,000 sq m Lingang Industry auto manufacturing, new energy equipment, shipping component Rent RMB1.22 psm per day Key JD, Cainiao, Volkswagen, BMW, Industry IT, intelligent manufacturing, new Tenants Siemens material Fengxian Key Tenants Lotus, Suning, Sinotrans CBD Established DBD Business Parks 5 km Jinshan

Source: Colliers International

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Top picks and beneficiaries in Shanghai’s logistics market

Lingang PVG Due to CIIE, robust Located southeast of Shanghai and at the Shanghai Pudong Airport Bonded Zone is demand should spill intersection of the mouth of the Yangtze close to Pudong International Airport, and over from Shanghai River and Hangzhou Bay, Lingang industrial at the intersection of eastern coastal to other key logistics park is endowed with unique shipping economic belt and the Yangtze River. It is hubs in the YRD advantages. It is characterized by the seven positioned as the distribution centre for high value added electronic components, regions such as Wuxi, largest sectors such as new energy equipment, shipping accessories, auto parts industrial parts, medical instruments and Nantong, Jiaxing and luxury goods. Changshu, given the and vehicles, ocean engineering, limited availability of engineering machinery equipment, civil The demand for advanced medical aviation equipment. new supply in instruments and retail brands is likely to expand, stimulated by their central position Shanghai, bolstered As a strategic move to attract foreign capital, in the CIIE and also Shanghai government’s by the increased Shanghai signed a memorandum with Tesla in July, 2018 to locate its Gigafactory in the Waigaoqiao plan to boost the development of the import demand for international consumer city in the next Lingang area with a planned output of Waigaoqiao Bonded Zone is at the mouth of auto parts and three years. As a result, we expect the 500,000 vehicles per year. It is the largest the Yangtze River, and close to the deep vehicles, medical leasing demand for the logistic properties in overseas manufacturing project ever water port of Waigaoqiao, which is instruments and the PVG area to increase from overseas planned in Shanghai. characterized by industries including luxury retailers, and companies in the luxury goods. international trade, modern logistics and Increased demand The showcase of imported advanced medical instrument industry. manufacturing equipment, auto parts and advanced manufacturing. should continue to Additionally, PVG’s position as the vehicles in the CIIE should facilitate industry Taking the opportunities of CIIE, push down the distribution centre for luxury goods will upgrades in Lingang, and increase import Waigaoqiao Bonded Zone should function overall vacancy rate likely also increase the logistics demand demand from automakers, suppliers and as the key distribution centre for imported from cross-border e-commerce operators. and support the dealers. The demand for logistic properties merchandise, electronic equipment and rental growth of the ought to be supported accordingly. auto parts. The leasing demand for logistic logistics property properties will probably be increased by the market in the YRD companies in the trading, 3PLs, advanced regions. auto and manufacturing industries. Despite the higher vacancy rate of 17.6% for the logistic properties in the Waigaoqiao area in the third quarter of 2018, the robust demand should continue to absorb the vacant space and support its rental growth in the next three to five years.

9 Source: Colliers International COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

OFFICE DEMAND SET TO Figure 13: Shanghai’s GDP structure (based on industry) INCREASE FROM EXPANDED 100% BUSINESSES IN CHINA 80% As a pilot city of economic growth and transformation in China, the 60% proportion of Shanghai’s service industry to GDP has steadily increased in the past decade, reaching 69.2% in the first half of 2018, with the 40% financial sector accounting for 18.8%. The further opening-up policies should boost this restructuring trend 20% for the future. The relaxation measures for market access should bring more foreign service providers to the Shanghai market and stimulate 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H18 the scale and quality of the city’s overall service industry. With potential and existing service providers likely to expand their footprints in China, Service Industry Secondary Industry Primary Industry demand for prime office space in Shanghai should increase accordingly. The growth of MNCs and the overall service sector should drive Source: Statistics Bureau of Shanghai, Colliers International demand for prime office space in Shanghai for both CBD and decentralized submarkets. Figure 14: Total number of multi-national corporations in Shanghai Figure 15: Proportion of value added by Shanghai’s financial industry

700 625 600 60% 50% 560 450 426 40% 420 345 300 30% 280 20% 150 140 10%

0 0 0% 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H18

Regional Headquarter Investment-type Company R&D Centre Added Value of Financial Industry Proportion of GDP

Source: Statistics Bureau of Shanghai, Colliers International Source: Statistics Bureau of Shanghai, Colliers International 10 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Office: Office submarkets likely to benefit from further opening-up measures for the trading, finance, professional services and shipping industries The further opening-up measures for the services sector mostly cover the trade, finance, professional services and shipping industries. Thus, office districts in Shanghai that have such businesses clustered should see the most benefit. Hongqiao CBD for example, is the home to many headquarters of manufacturing businesses and trading companies, and will likely take advantage of import expansion policies and hosting CIIE to attract more similar businesses.

Figure 16: Policies impacting the Shanghai office market

Major relevant office Industry Main policies and measures Key coverage clusters CIIE • Import goods and service exhibition • Hongqiao CBD Import 100 measures for opening up Shanghai wider Trading • Tariff reduction • Hongqiao expansion The Asia-Pacific Trade Agreement –the Second Amendment • Trade clearance facilitation Economic Zone State Council Executive Meeting • Relaxing foreign ownership restrictions for bank, 100 measures for opening up Shanghai wider securities and insurance companies Special Management Measures for the Access of Foreign • Relaxing business scope restrictions for bank, • Lujiazui Market Investment (Negative List) securities and insurance companies • Zhuyuan Finance access • Relaxing foreign investment in Chinese financial • The Bund relaxation Notice of the State Council on Certain Measures for Actively markets • The North Bund and Effectively Utilizing Foreign Investment to Promote • Relaxing foreign investment company setup Quality Economic Development conditions • Increasing market access for foreign training 100 measures for opening up Shanghai wider institutions Notice of the State Council on Certain Measures for Actively • Increasing market access for foreign engineering • West Nanjing Road Market Professional and Effectively Utilizing Foreign Investment to Promote firms and relevant talents • Xintiandi access Service Quality Economic Development • Relaxing establishment restrictions for mainland • Lujiazui relaxation and Hongkong and Macao joint venture law firms • Wujiaochang Deepening of the Pilot Program of Innovative Development • Relaxing restrictions on foreign investment of Trade in Services talents agency and qualification institution 100 measures for opening up Shanghai wider • Relaxing foreign ownership restrictions for Market shipping management companies Shipping access Notice of the State Council on Certain Measures for Actively • The North Bund • Relaxing restrictions on foreign investment in relaxation and Effectively Utilizing Foreign Investment to Promote Quality Economic Development transportation and logistics

Source: Public information, consolidated by Colliers International 11 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 0503 NOVEMBER 20182 018

Major benefiting Shanghai Grade A office clusters from further opening measures Figure 17: Office clusters likely to benefit from policy measures

Stock 555,000 sq m Rent RMB5.6 psm per day Industry Tech & Innovation, professional Stock 577,000 sq m service Rent RMB7.7 psm per day Key Tenants IBM, Oracle, Baidu, Nike, Bilibili, Industry Shipping logistics, finance Wujiao AECOM, PwC -chang 外高桥 Key Tenants SIPG, Shanghai Longfei Logistics, Honour Lane Shipping, Metlife Stock 2.39 million sq m Stock 928,000 sq m Rent RMB12.1 psm per day Hongkou Rent RMB10.3 psm per day Industry Finance, professional service New Jing’an Industry Professional service, high-end Key Tenants The world's leading financial manufacturing institutions Key Tenants McKinsey, PwC, Deloite, CICC, Kyocera, Fuji Xerox The North Putuo Stock 681,000 sq m Bund Stock 1.11 million sq m Rent RMB9.6 psm per day Rent RMB11.7 psm per day Industry Finance, professional Industry Professional service, finance, Jing’an Lujiazui service high-end manufacturing Key CFSH, Changjiang Zhuyuan Key KPMG, Blackstone, Gensler, IDG, West Nanjing The Bund Tenants Securities, Lujiazui Wealth Road Huangpu Management, Facebook Tenants Sanofi, Muji, Johnson ControlChangning Xintiandi

Stock 268,000 sq m Xuhui Rent RMB9.6 psm per day Hongqiao Economic Industry Finance, professional service, high-end Hongqiao Zone manufacturing CBD Stock 544,000 sq m Stock 690,000 sq m Key Tenants Everbright Pramerica, Bank of Rent RMB6.7 psm per day Rent RMB7.5 psm per day Hangzhou, Deloitte, PepsiCo, Nikon Industry High-end manufacturing, Property, Industry High-end manufacturing, trading, trading, logistics professional services CBD Established DBD Key Shell, Roche, Keyence, AOC, Yuwell, Key 3M, WATTS, Daifuku, Sodexo Business Parks Tenants Vip.com, Vanke, SCE, Shentong Tenants 0 5 km

Source: Colliers International 12 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Hongqiao CBD: the centre of the spotlight Figure 19: Yangtze River Delta city clusters Since Hongqiao CBD is the core of the YRD, which connects Shanghai with the surrounding cities, a number of manufacturing businesses in the YRD are now relocating their headquarters to this cluster. Over 70 well-known enterprises have chosen the Hongqiao CBD to be their headquarters, including Shell, Roche, Keyence, Yuwell and Wolong. The attention brought by CIIE and its showcasing of the world class exhibition and business facilities should drive more multi-national companies to choose Hongqiao CBD for Yancheng their headquarters for future market expansion. In addition, compared to other business districts in Shanghai, Hongqiao’s accessibility and more Nanjing Hefei Nantong moderately priced Grade A offices should make it an attractive pick for Changzhou corporate expansions. Wuxi Transportation and exhibition hub to draw trading and e-commerce Shanghai-Nanjing-Hefei- Hangzhou-Ningbo Suzhou Hongqiao companies Development Belt HUB Supported by advanced transportation infrastructure, Hongqiao CBD has grown to be the hub of trading businesses and the core of Shanghai’s global Zhoushan Hangzhou trade. The recent settlement of e-commerce leaders like Alibaba, JD.com and VIP.com is also adding an e-commerce and new retailing feature to the area. The import expansion policies should enhance this trend and stimulate Ningbo the clustering of trading and cross-border e-commerce industries in the region. Jinhua

Looking forward, the industry integration of the YRD region along with Taizhou import expansion policies should create synergies, boost the continued Source: Yangtze River Delta Development Plan, Colliers International clustering of manufacturing, trading and e-commerce businesses in the Hongqiao CBD, and so create greater demand for modern logistics property Figure 18: Rents comparison: Hongqiao CBD vs other clusters in Shanghai and surrounding node cities on highly connected “Development (RMB psm per day) Belts” in the YRD. This is especially true for cities within a range of 300 to 14 12.1 11.7 500 kilometres from the Hongqiao CBD. This makes the Hongqiao CBD a 12 10 6.7 7.7 7.4 strategic location and its impact will spread out to neighbouring cities. 8 5.6 5.1 6 4 2 0 Hongqiao Lujiazui West The New Bund Wujiaochang Daning CBD Nanjing Northbund Road

Source: Colliers International

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Hongqiao is an easy pick, but these are the other major office clusters that benefit Lujiazui The North Bund Future Supply (till 2022): 481,000 sq m Future supply (till 2022): 47,000 sq m (5.17 million sq ft) (505,903 sq ft) Capitalising on the riverfront location and Lujiazui is the financial centre of China, with Shanghai International Port Group (SIPG), highly concentrated financial and professional North Bund has evolved to a major shipping service firms. The relaxing of financial market logistic industry hub. It also absorbs the access should bring more foreign firms into spillover financial demand from Lujiazui in the area. Considering the extremely limited recent years, leading the area to form a “two future supply, the average rent will likely engine” economic development, i.e. shipping increase steadily in the next five years. and finance. With the opening measures, high quality office properties like Sinar Mas Plaza, Landmark Centre and Shanghai Point should continue attracting more shipping and financial occupiers.

West Nanjing Road Future Supply (till 2022): 321,000 sq m (3.45 million sq ft) West Nanjing Road is one of the key business districts in Shanghai, with a high number of premium offices, high-end shopping malls and hotels. It is also an area with the highest density of foreign and local professional service firms in Shanghai, including consultancy, law, accounting, design and advertising firms. Most of the office buildings in the cluster currently have an occupancy over 90%. We expect more notable firms to be attracted to the cluster along with the new high quality projects coming online.

Source: Colliers International 14 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

CIIE should benefit domestic manufacturing enterprises as exposure to SHANGHAI BUSINESS PARKS ARE frontier technologies and industry trends should lead to changes in development strategies and enhance their international competitiveness. HUBS FOR MANUFACTURING AND Figure 8: Added value of Shanghai’s emerging industries, their growth and TECHNOLOGY R&D share of GDP (2013-2017, RMB Billion)

Shanghai is a national centre of technological innovation and advanced 600 20% manufacturing. After decades of development, Shanghai is home to a variety of high-tech parks and development zones, featuring specific leading 500 16% industries and foreign-invested enterprise clusters. In 2017, the added value 400 of Shanghai’s emerging industries* reached RMB494.4 billion (USD71.1 12% billion), a YOY increase of 8.7%, accounting for 16.4% of the city’s GDP. 300 8% Stably increasing R&D spending, as well as the steady growth of software 200 information, scientific research and other service sectors, underpinned the 4% robust growth of advanced manufacturing. 100 0 0% At present, the so-called Fourth Industrial Revolution is spreading globally, 2013 2014 2015 2016 2017 and China has initiated its Made in China 2025, a strategic plan that is Added Value of Emerging Sectors Growth Rate attempting to upgrade Chinese industry in order to occupy the highest parts Proportion of GDP of global production chains. Source: Shanghai Statistics Bureau, Colliers International

Figure 9: Revenue growth rate by service sectors, Shanghai ( Jan.-Aug. 2018) Figure 10: Shanghai’s R&D spending and its share of GDP (RMB Billion)

IT, software and IT service 11% 150 5%

Software and IT service 18% 120 4%

Scientific research and technology… 15% 90 3%

Transportation, warehousing and… 12% 60 2%

Business Service 11% 30 1%

Education 10% 0 0% 2011 2012 2013 2014 2015 2016 2017 0% 5% 10% 15% 20% Funds Proportion of GDP

* Emerging industries include sectors of New energy vehicles, bio-pharmaceuticals, new generation of information technology, Source: Shanghai Statistics Bureau, Colliers International 15 energy conservation and environmental protection, new energy, high end equipment and new material. COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Business parks: Policies of opening-up should stimulate growth of intelligent automotive equipment, medical equipment and health care industries, boosting demand for Shanghai’s business parks With the gradual opening up of China’s market, foreign investors have manufacturing sector’s use of foreign investment. Accordingly, more expanded their investment focus from processing and manufacturing to foreign investment will likely be invested in emerging manufacturing high-tech sectors such as integrated circuit design and intelligent sectors such as automotive, high-end equipment, consumer electronics, manufacturing. In 2017, there were 625 regional headquarters of MNCs in and medical devices. The continuous improvement of the business climate Shanghai, including 70 Asia-Pacific regional headquarters, 345 investment should create a stable, transparent, and predictable investment companies and 426 R&D centres. environment for global investors, attracting more foreign investment and business to Shanghai, therefore enhancing the demand for office space in In July 2017, Shanghai introduced the Three Year Action Plan for Shanghai business parks. Manufacturing Industry’s Use of Foreign Investment to promote the

Figure 11: Policies impacting the Shanghai business park market Industry Main policies and measures Key coverage Major relevant business parks

• Attract foreign new energy vehicle (NEVs) enterprises to Shanghai 100 measures for • Attract R&D centres and assembly centres of world-famous foreign Expand market opening up Shanghai automotive enterprises to Shanghai Jinqiao Economic and Technological access wider • Attract foreign-invested programs of high performance motor battery, Development Zone, Caohejing Hi-Tech Automobiles and electronic controls to Shanghai Park, Jiading Industrial Zone, Lingang Industrial Area Increase Announcements of • Lower import tariffs for automobiles and auto parts imports the State Council

Consumer Notification about Zhangjiang Hi-Tech Park, Jinqiao • Foreign-invested enterprises are equally applicable to the incentive electronics and how to open wider Economic and Technological Expand market policies of Made in China 2025 Plan applications, high- to the outside world Development Zone, China (Shanghai) access • Attract foreign investors to invest in high-end manufacturing, intelligent end intelligent and utilize foreign Pilot Free Trade Zone (Bonded Area), manufacturing and green manufacturing equipment fund Caohejing Hi-Tech Park

• Develop an import hub for pharmaceutical and medical equipment • Allow designated hospitals and medical institutions in Shanghai to use Medical equipment 100 measures for certain imported new antitumor drugs and medical equipment that Zhangjiang Hi-Tech Park, Shanghai Increase and health care opening up Shanghai have not been registered by the China Food and Drug Administration International Medical Zone, Caohejing imports products wider • Speed up the import customs clearance of drugs and medical equipment Hi-Tech Park, Kangqiao Industrial Zone • Develop a pharmaceutical supply chain platform integrating domestic trade and foreign trade

Source: Public information, consolidated by Colliers International 16 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Figure 12: Business parks likely to benefit from policy measures

Stock 500,857 sq m Stock 600,000 sq m Rent RMB3.8 psm per day Rent RMB3.5 psm per day Industry Software development, cloud computing Industry trade, logistics, automobile Key Tenants Kelong, Inspur, Zamplus, Kohler, Baozun.com Key Apple, Samsung, Sony, Siemens, Tenants Abbott, Exxon Waigaoqiao

Stock 1.5 million sq m New’jingan Rent RMB3.5 psm per day Industry Automobiles and auto parts, digital information, NEVs, intelligent equipment, Hongkou biopharmaceutical Stock 1.3 million sq m New Jing’an Jinqiao Key Huawei, GM, Volvo, Union Motors, Bayer, Rent RMB4.2 psm per day putuo Tenants Omron Industry Telecommunication, IT, Lujiazui Modern Logistics Jing’an Key Ctrip, Motorola, Linkong Tenants MITSUBISHI, Honda Huangpu Changning Xuhui Stock 2.2 million sq m Zhangjiang Rent RMB5.1 psm per day Industry Integrated circuits, software development, new materials, high technologies and Stock 2.7 million sq m modern service industry Caohejing Rent RMB4.5 psm per day Key Tencent, Cisco, 3M, MSD, Unilever, Johnson Tenants & Johnson, Peugeot Citroen Industry IT, biopharmaceutical, cultural and creative industry Key Tenants General Motors, IBM, Novartis, AstraZeneca, Roche

Stock 813,622 sq m Rent RMB2.5 psm per day Pujiang CBD Established DBD Industry automation, medical, new energy Business Parks Key Tenants Covidien, Suntech, Spirax Sarco, 0 5 Ahlstrom Kilometer

Source: Colliers International

17 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

Major business parks in Shanghai expected to benefit from policy measures

Zhangjiang Jinqiao Future Supply (till 2022) : 281,793 sq m (3.03 Future Supply (till 2022): 406,655 sq m (4.38 million sq ft) million sq ft) as of 2022 Zhangjiang High-tech Industrial Park is one of Jinqiao has established automobiles and auto the most innovative national high-tech parks in parts, digital information, household China. It has 768 recognized high-tech appliances, and food and biopharmaceuticals enterprises, 403 technology centres at the as its four pillars, and promotes the growth of national, municipal or district level, and hosts emerging manufacturing sectors including 49 regional headquarters of MNCs and 138 development of NEVs, high-end equipment, foreign-invested R&D centres. mobile video, new finance and cross-border e- commerce. In the last 20 years, Zhangjiang has established expertise in three areas: biopharmaceuticals, As a co-organizer of the Trade in Services IT, and the cultural and creative industries. Caohejing exhibition of CIIE, Jinqiao Group aims to Currently under development are strategic Future Supply (till 2022): 392,384 sq m (4.22 establish better communication between the emerging industries such as low-carbon green million sq ft) advanced manufacturing and modern service industry, R&D of civil aviation and NEVs. With sectors. Jinqiao should benefit from not only these industries already rapidly expanding, the Caohejing High-tech Park is home to over the opening-up policies for automotive and boost from the CIIE should see demand for 2,500 high-tech enterprises, including more other high-end manufacturing, but the high quality office space in Zhangjiang than 500 foreign-invested enterprises. Eighty- favourable opportunities available to services increasing. one Fortune 500 companies have set their tenants as it shifts away from manufacturing. regional headquarters or R&D centres in Caohejing. Caohejing focuses on sectors including IT, new materials, biopharmaceuticals, aerospace, environmental protection, new energies and automobile R&D. Caohejing identified innovation and foreign investment as two major motivators for future development, thus it is strategically positioned to capatalise on Shanghai’s hosting of the CIIE.

Source: Colliers International

18 COLLIERS RADAR CHINA INTERNATIONAL IMPORT EXPO | EAST CHINA | 05 NOVEMBER 2 018

CONCLUSIONS & RECOMMENDATIONS

As a crucial step forward for China’s opening-up initiatives, the launch of CIIE should facilitate the economic restructuring and industry upgrades. Traditional manufacturing, such as automobiles, should be transformed into a technology-driven intelligent manufacturing sector with higher added value. The service industry will likely become more diversified with lower barriers to entry in the fields of finance, professional services and shipping. In addition, domestic consumption should be augmented by the increased demand for imported luxury goods, spurred in part by the CIIE. The trade surplus should continue to ease while the proportion of imports should keep rising.

Driven by the favourable policies (i.e. tariff cuts, reduced market access thresholds) and the knock-on effects of hosting the CIIE, we recommend landlords and occupiers to focus on the following key submarkets in the commercial property market.

Logistics Office Business Park

We recommend automakers and imported With more imported goods, We recommend high-tech companies and vehicle dealers to seek warehouse space manufacturing and FMCG businesses and advanced manufacturing enterprises to not only in the Lingang and Waigaoqiao importers set to expand their presence in give serious attention to the frontier areas but also in the surrounding node China, the positive effects should trickle technologies exhibited at the CIIE and the cities of YRD region, such as Wuxi, Nantong, down to offices, especially in the accompanying seminars and activities. Changshu. It should also serve to reduce Hongqiao CBD because of its Domestic biopharmaceuticals and their logistic costs. extraordinary accessibility and intelligent equipment companies which transportation facilities. seek opportunities to benefit from We recommend luxury retailers and technology spillovers through imports imported pharmaceutical dealers to focus In addition, demand from foreign service should in particular see benefits. on the Pudong PVG area, which is businesses should increase as well, positioning itself as a distribution centre for particularly finance, professional service Landlords should stay informed about luxury goods. and shipping firms as they benefit from new technology trends and opening-up the relaxation of market access measures policies, in order to upgrade building On back of the industry upgrades boosted in the services sector. Large office specifications and services to keep pace by the CIIE and opening-up policies, we landlords should heed the importance of with tenants’ evolving needs. Rents and encourage landlords to improve their foreign enterprises as tenants, and plan asset performances should improve with existing tenant profiles to better meet the services accordingly. an expected increased in demand. local government tax requirements, thereby propping up the rental and asset performance of their logistic properties.

19 Primary Authors: Don Fan Analyst | Research | East China Timothy Chen +86 21 6141 4378 Director | Research | East China [email protected] +86 21 6141 3550 [email protected] Contributors:

Jerry Shen Dave Chiou Associate Director | Research | East China Senior Director | Research | China +86 21 6141 3509 +86 21 6141 3590 [email protected] [email protected]

Abby Zheng Andrew Haskins Senior Analyst | Research | East China Executive Director | Research | Asia +86 21 6141 4336 +852 2822 0511 [email protected] [email protected]

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Copyright © 2018 Colliers International The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.