Recent years have seen maturing urban infrastructure combine with strong office and retail demand to give rise to new commercial clusters along the periphery of Shanghai’s city centre. One of the most prominent emerging areas is Hongqiao, which has a unique history. Hongqiao, previously an important office and retail area in Shanghai, faded from prominence in the 1990s, but today returns stronger than ever. New developments are restoring Hongqiao to its former prominence.

Once a rural area in western Shanghai, Hongqiao was designated as a state-level development zone in 1986. Authorities took advantage of the zone’s location between Hongqiao Airport (Shanghai’s only international airport at the time) and Shanghai’s traditional centre to develop a commercial hub with exhibition space, offices, hotels, and diplomatic facilities. The 1990s saw a wave of development that cemented Hongqiao’s rise as one of Shanghai’s key early business districts. More than ten office towers were built, and the zone attracted a range of multinational companies like 3M, Chrysler, GE, and LG. In addition, at least half a dozen foreign consulates were established in the area. Hongqiao’s Friendship Department Store opened in 1994 and became the most high-end retail property in Shanghai, with international brands and imported products. As other areas like Lujiazui (the financial district) and Xujiahui (in the southwest) took centre stage in the late 1990s and early 2000s, demand and supply in Hongqiao’s office and retail sectors declined, and Hongqiao’s brightness began to fade (see chart below). The turning point came in 1999 when Pudong International airport, 60 km east, took over all international flights to Shanghai.

Hongqiao is experiencing a surge of construction of prime office and retail space that is giving it a new lease on life. Notable new mixed-use projects include L’avenue by LVMH, The HQ (Shanghai City Centre) by Treasury Holdings, GIFC Phase II (Takashimaya) by Gubei Group, Jin Hongqiao by APP and SOHO’s Tianshan Road Project. All of these have just completed or will complete within the next three years, doubling the retail stock of the area. We reclassified Hongqiao from a decentralised area to a part of Shanghai’s CBD in 2011, due to the comprehensive upgrade of the area’s business environment. For example, L’avenue will be home to the first Louis Vuitton and Tod’s stores in west Shanghai. Meanwhile, the commitment rate of GIFC Phase II’s office portion (70,000 sqm) has already exceeded 60%, higher than the average of other CBD projects that delivered in the same quarter.

Hongqiao’s profile will be further boosted by the rising prominence of the west Shanghai region, which is underpinned by the new Hongqiao Transportation Hub, including a hugely expanded airport. Tenants are attracted to Hongqiao for its new properties, strong government support, and large, wealthy population base. As a result, we expect that Hongqiao’s rental performance will remain sound and will experience stronger rental growth than most areas in Shanghai.

Source : Jones Lang LaSalle, Real Estate Intelligence Service

About the author
Evian Zhu is Assistant Manager in Jones Lang LaSalle’s research team in China, based in Shanghai.

I recently visited Zhengzhou, a heavily industrialised city and the provincial capital of Henan in Central China. The city is the second largest in Central China (after Wuhan) and serves as one of the strategic transportation hubs in the region and the focal point of development in one of the most populous provinces in China with close to 100 million people.

Venturing beyond the glamour of the new business district and economic zones, however, we see near and medium-term risks of limited occupier demand for retail space in the city. As shown in the income distribution chart below (we recognise that there are inherent flaws with income data in China. However, available data do allow for some comparative analysis of underlying socio-economic structure between cities. For this analysis, we’ve excluded the low-income segment (< 30K), which accounts for roughly 80% of the urban population in Zhengzhou), while Zhengzhou is a provincial capital with an urban population of over 8 million residents (resident population is 8.9 million in 2011 (EIU), approximately 4 million resides in the city proper), it is considerably skewed towards the low income segment and relative to its more affluent provincial capital neighbours, with the absolute number of consumers quickly dropping off above the middle income bracket.

We readily observe the differences between the cities in the field. Across the board, brand diversity in Zhengzhou pales compared to some more vibrant inland cities including Wuhan and Chongqing, which themselves are a step below the wealthier Tier 2 capitals such as Nanjing and Chengdu. That is not to say that there is no demand for fast fashion brands or mid-market retailers in the city, just that other more affluent Tier 2 markets are potentially more attractive to retail brands for scalable expansion.

Therefore, while the aggregate consumer spending looks impressive at the city-level, prime retail developers and operators in the city are having a more difficult time attracting quality international mid- and mass-market fashion brands to Zhengzhou.

Arguably, as the city moves up the economic development curve, the absolute number of higher income consumers will increase, thus providing Zhengzhou with a larger pool of middle class consumers. However, income forecasts through 2020 suggest that even as Zhengzhou moves up the income ladder, the number of middle class consumers in other cities will grow even faster. Therefore relative to other wealthier cities, Zhengzhou won’t become more attractive, and we would expect brands to prioritise more affluent tier 2 cities for expansion above Zhengzhou in the near term.

My outlook for 2013-4: expect to see higher vacancy rates city-wide and a higher likelihood of delays in new mall openings due to low pre-commitment rates.

Retail snapshot: As of 2012YE, Zhengzhou has 1.2 million square metre of prime shopping mall stock, of which nearly 15% is vacant. The city is expected to add another million square metres of shopping mall space in the next two to three years.

About the author
Amy Pan is an Associate Director in Research and looks after Real Estate Intelligence Service (REIS) China for Jones Lang LaSalle. She is based in Shanghai.

Over the past two months, I have been working with our Chongqing team to prepare the launch of the World Winning Cities – Chongqing profile. This paper, which we plan to release before the Chinese New Year, discusses the themes that underpin the continued growth momentum of Chongqing – the “World’s Fastest Growing Large City” – with average GDP growth exceeding 15% y-o-y since 2005.

A quick preview of the key takeaways about Chongqing discussed in the paper:

Not surprisingly, our findings on the medium term opportunities coincide with the sectors highlighted in our China50 report, namely retail and logistics.

For logistics, improving infrastructure and greater integration with the country and the world will further add pressure to supply shortages. The combination of limited supply and strong demand should result in above average returns for logistics property.

Retail fundamentals are tied to rapid wage increases resulting from the city’s urbanisation process. As Chongqing increases its current urbanisation rate of 55% (low relative to its Tier 1.5 peers), consumer spending growth and changing retail spending patterns will drive demand for more and better retail. And while there has been significant improvement in Chongqing’s retail infrastructure over the past year, current retail offerings – either in terms of total quantity or diversity – still lag cities of comparable size and income level. Given the city’s relatively low income levels and favourable economic outlook, we believe socio-economic factors will provide a good demand base for retail assets in the city.

We look forward to formally introducing the report to you in early 2013!

About the author
Amy Pan is an Associate Director in Research and heads up Real Estate Intelligence Service (REIS) China for Jones Lang LaSalle. She is based in Shanghai.