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News Release

Guangzhou

Raising the bar for skyscraper development and management in China requires a clear focus on planning, operations and market positioning


China's rapid urbanization has been inextricably linked to massive urban development over the past decade. While issues such as historic preservation and spatial planning have often taken a backseat in many cities especially where new business districts are being developed, the drive for infrastructure expansion has laid the foundations for skyscraper construction.  At the same time, rising demand for mixed-use building facilities — such as office space, hotel accommodation and retail outlets — from business users, domestic travelers and investors has accompanied economic growth. In addition, local governments in China have encouraged skyscraper construction through their urban planning and investment promotion schemes. As a result, China’s soaring skylines are the envy of the world.

Skyscrapers rise beyond Tier I cities in China

A skyscraper is typically a mixed-use commercial building that stands taller than 400 meters, and contains Premium Grade A office space, a retail mall, a luxury hotel and residential apartments. Skyscrapers also offer a range of entertainment and dining facilities and imbue a city with iconic architectural significance. Currently, eight completed skyscrapers are located in six cities across Greater China (see Figure 1).
 
Figure 1: The eight skyscrapers in Greater China (as of August 2013)

 
Building name
City
Height
Number of floors
Date of completion
Purpose
1
Taipei 101
Taipei
508
101
2004
Office
2
Shanghai World Financial Center
Shanghai
492
101
2008
Office/hotel
3
International Commerce Center
Hong Kong
484
108
2010
Office/hotel
4
Zifeng Tower
Nanjing
450
66
2010
Office/hotel
5
Kingkey 100
Shenzhen
442
100
2011
Office/hotel
6
Guangzhou International Finance Center
Guangzhou
439
103
2010
Office/hotel
7
Jin Mao Tower
Shanghai
421
88
1999
Office/hotel
8
Two International Finance Center
Hong Kong
412
88
2003
Office
Source: Council on Tall Buildings and Urban Habitat (CTBUH)
 
Among the 15 skyscrapers currently under construction in China, four are being built in Tier I cities, including Beijing, Shanghai, Guangzhou, and Shenzhen, and 11 are in non-Tier I cities, such as Wuhan, Tianjin, Chongqing, Suzhou, Guiyang, and Nanjing (see Figure 2). While the surge of CBD-based skyscraper construction is drawing to a close in most Tier I cities, this trend is expected to continue in non- Tier I cities over the next five years. “As China’s rate of economic growth slows, the skyscraper boom in these cities is likely to result in a short-term oversupply in the office market,” says Martin Chiu, Head of Strategic Consulting at Jones Lang LaSalle South China. To address this challenge, skyscraper developers may need to reconsider the timing for entering an urban market. Once committed to a new development, the strategy should involve preparing a feasible leasing plan with practical rents to attract new tenants.  Considering a partial sale of the property — for example, the residential apartments — may secure a much-needed short-term investment return.
 
A premium location, hardware of quality plus world-class management can elevate skyscraper rents

As eye-catching city landmarks, skyscrapers hold a strong appeal for brand-aware corporate tenants seeking premium office premises. The multifunctional nature of these buildings, which typically comprise a branded shopping mall with dining and entertainment, a luxury hotel and serviced apartments, enhances the magnetism. The location of a skyscraper can add value to the market positioning for corporate tenants. For example, the Shanghai World Financial Center and Jin Mao Tower are located in Shanghai’s thriving Lujiazui financial district and more than half of their tenants are financial industry companies, while landmark projects in mature areas often appeal to professional services firms. In Guangzhou, skyscraper tenants include diversifying Chinese corporates, financial companies, private banks, real estate developers, professional service firms, and the headquarters of privately owned companies.
 
“Implementing a carefully considered marketing plan is essential for skyscrapers to achieve premium long-term rents, particularly because of the building’s large capacity,” says Victor Mar, Head of Markets at Jones Lang LaSalle Guangzhou. While a skyscraper’s iconic aesthetic can be a market differentiator, a combination of factors, including the quality of the property and range of services, and the surrounding business environment, impact its rental returns. As location and building specifications become increasingly homogeneous in urban China, property management plays a pivotal role. Buildings with international management standards are more successful in attracting high-end tenants and premium rents. In some cities, skyscrapers in core business areas with management standards that are not perceived to be high quality are only achieving similar rental returns as other Grade A office buildings.

Positioning and planning are key factors for building higher returns

The significant height, spacious capacity, and complex usability present unique challenges to skyscraper property managers. Key strategy considerations include fire safety, antiterrorism and security, operational risk, energy and sustainability, cleaning and maintenance, tenant services and brand management. “Failure to address these issues can lead to dissatisfied tenants, a fall in rental yields and a depreciation of asset value – and this can become a vicious cycle,” says Albert Lee, Head of Property and Asset Management at Jones Lang LaSalle South China.

“While ‘today’s high will be tomorrow’s average’ is a maxim that inevitably applies to the height of new buildings in China, it is important to focus on growing a property’s value by providing best-in-class services,” adds Lee. Although most Chinese developers are utilizing state-of-the-art architecture and design, and cutting-edge hardware, many lack international experience in property management.

Ideally, professional property management should be deployed from the initial stages of planning a new skyscraper. Expert property managers can provide added-value input into the selection of mechanical and electrical appliances, the efficient design of public areas, operational security, environmental policy, and branding and positioning.

Customized management schemes also improve the building’s overall efficiency and profitability. Investment in energy and sustainability, for instance, can result in lower operational costs, higher occupancy rates and competitive rents. “A clearly defined strategy that takes into account the positioning, planning and management of a property will result in more best-in-class landmark skyscrapers in Chinese cities with higher investment returns, stronger asset appreciation and a sustainable built environment,” Lee concludes.