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News Release

Tianjin

Unleashing Yujiapu’s Potential


​​September 30th, 2015 marked a big day for the Yujiapu Financial District as the railway station opened up, linking Yujiapu to both Tianjin and Beijing via high-speed rail within an hour's time. The Yujiapu development has come under criticism from Western media – many considered the region's construction a sign that China was at the height of its property bubble. The completion of Yujiapu's new, eye catching railway station may instead be a signal that the government is capable and committed to establish Yujiapu as a regional commercial center.

The Yujiapu Financial District is a government-financed new development area located in Tianjin's Binhai New Area. Resting on a peninsula formed by Haihe River, the area spans a total land area of 3.86 million square meters. The area is to be developed in four phases covering more than 100 plots of land, equating to roughly 9.5 million square meters of new development space. The project aims diversify the regional economic base, which has traditionally depended on manufacturing and logistics.

By developing Yujiapu, a brand new master planned commercial development; Tianjin was following in the footsteps of other major cities that have created zones to spur economic development including Shanghai (Lujiazui) and Guangzhou (Zhujiang New Town).  They weren't even the first to try this in Tianjin. Just a few kilometers away, in the TEDA development area, long one of Tianjin's best known development zones, a mixed use commercial area called TEDA MSD (Modern Services District) is also under development.  Somewhat confusingly, TEDA and Yujiapu are separate areas with distinct leadership and goals, but are both part of Tianjin's​ Binhai New Area.

To comprehend the genesis of Yujiapu and similar new commercial districts developments in China it is important to understand that developers motivated by profit are unlikely to undertake a greenfield development where there is no market and there is no infrastructure. The plan for Yujiapu is a grand one. Take an unused former industrial site and transform it into a major base for the service sector.  That process involves creating a master plan, building the base infrastructure including transportation links, securing several anchor tenants and allowing time for the project to develop.  Eventually once a critical mass of tenants, services and other support functions has developed, commercial developers will be attracted to develop available land plots. More importantly, if successful, the local government will have created a tax base with companies and individuals attracted to the area and providing income when the local manufacturing base eventually declines.

The Tianjin government put in plan a place to make this happen. They hired SOM (Skidmore Owings and Merrill), an experienced US based architectural and planning firm that has developed a number of the world's most iconic buildings and worked on the Beijing Finance Street master plan and many more city level master plans across China and Asia. The government created a project company to undertake the initial land and infrastructure development called TIFI (Tianjin Innovative Financial Investment company) They secured several anchors tenants for the office buildings including Huaxia Life Insurance, Winland Group and the Tianjin Rural Commercial Bank. They also recently secured a major cultural resource when Julliard, the New York based performing arts institution announced plans to open a branch in Tianjin in 2018.

Many scoff at such plans, but don't realize, Shanghai's skyline in Lujiazui was created in much the same way. Although today it has nearly a hundred skyscrapers, most of the original buildings were government backed including the Jin Mao tower, the Shanghai Stock Exchange, the Bank of China Tower, and buildings for the Bank of Shanghai and Bank of Communications. Lujiazui was kick started by central planning, not capitalism.

When planning the area, SOM also took into consideration challenges other new zones had faced. For instance in Shanghai's Lujiazui area, a major road splitting the area in half made it difficult to get from one side to another, additionally subsequent subway development made traffic challenging. To avoid this, the Yujiapu area routed a major highway around the district and created a major pedestrian tunnel underground linking the train station to all of the office buildings in the area. Office workers can transfer directly from the train station to their office without ever going outside. This will be especially helpful in winter and will make the below grade retail space more valuable. Additionally, the developer prebuilt subway tunnels so that in future years, when the subway lines are built into the area, construction will not need to disrupt activities in the area.

Yujiapu has also set aside significant areas along the river and within the business district for parks and green space. Two large parks are located in the start-up area, the first portion of Phase 1 to be built. There is also a hotel building reportedly going to be managed by an international hotel management company.

One criticism of the area is that there is no residential space completed to date in Yujiapu, but rather the area is opening with nearly a dozen office buildings, a recipe for a sterile environment. Later phases of the project will include residential and this should help to see a steady increase in activity in the area. Another criticism has been that TIFI, a local-government financing vehicle (LGFV) has taken on large debt to finance this project.

The designation as a financial center reflected the hopes of some officials that financial firms could be attracted to the area and Yujiapu did indeed receive more flexibility than most of China to register private equity firms and asset financing companies in the district. These firms may eventually use Tianjin as a base, but a more likely set of tenants for the office towers are those who reflect the local economy including manufacturing, shipping and logistics.

Directly across the river from Yujiapu is another area named Xiangluowan, also sometimes referred to as Conch Bay. This area was developed before Yujiapu and has been panned because a number of projects appear to be half completed or are for sale at bargain prices. A number of domestic developers bought land there and developed projects for strata title sale and didn't have money to see their projects through. The result is that there was much property speculation and very little actual use so the area feels deserted. Outside observers sometimes incorrectly conflate these two areas. TIFI has attracted criticism because it hasn't been able to attract and convert major office users yet, but TIFI still controls most of the buildings in Yujiapu and is therefore better able to manage the environment during the start-up phase.

Much of the criticism Yujiapu was self-inflicted. TIFI's headquarters has huge model of the master plan and staff who can recite from memory impressive statistics and the names of companies they hoped to attract, but couldn't answer any basic questions that fell outside of the script. And initially there didn't appear to be anyone on staff with commercial real estate experience who could articulate how the development would actually work.

After a series of embarrassing encounters with international media deriding the area, TIFI largely shut the door on the media. Then came reports that Rose Rock, a group linked to the Rockefeller family and supposed to be building the iconic mixed use development near the train station was at least temporarily shutting down their project. Other groups with links to New York, a city TIFI looked to for inspiration, including Tishman Speyer have reportedly also quietly shelved their project for now.

However, things finally seem to be moving in the right direction for TIFI and Yujiapu. In 2014, Power Long, a domestic developer opened a shopping mall nearby and although it needs to attract more footfall, the new transportation link will help and struggling retail centers in China are hardly unique. With the train station opening in September 2015, visitors can now more quickly access the area and in November, the government held some promotional activities drawing students and young people to the area.

It was easy to be critical of Yujiapu when it was half built, unconnected, far away and empty. With a few anchor tenants now secured, an interesting skyline in place, a world class cultural anchor committed to coming and a train that connects with Beijing in 45 minutes, now is the time to start watching to see if it will be successful. If it is, in a few years, we will see more investment from the private sector and TIFI will be able to do what the government did in Shanghai's Lujiazui, step back into the shadows and let visitors believe it was all the work of private enterprise and capitalism.