Office space for let
There is going to be a lot of office space in Ningbo. According to a Savills report from last year, total office stock in the end of 2008 was 1.2 million sq. m. It’s not a small number, but it will more than double - another 2 million sq. m. is on track to be delivered by the end of 2011. We are interested in the Ningbo office market because of a project, so we had to wonder: why?
There seem to be several reasons. First, there are not one but two major “new districts” in Ningbo, government-sponsored development areas that are intended to become significant business districts. (In the case of one, the “New East City,” the intention is to form a new city center, with the city government to relocate there.) These two districts are nearby and appear to be competing with each other, and each has what a person not acclimatized to China’s property market would appear to be an overpoweringly large number of big office buildings under construction. Office rent in at least some of the new buildings, if you are the targeted kind of tenant, is zero. In others, it’s market rate, which is not very far from zero. In addition to these two districts, there is Yinzhou, a suburban district to the south that also has a lot of new offices, and of course the traditional downtown, which far from being emptied out U.S. style, is adding new buildings of its own.
Another reason is more subtle. As the city expands, older villages are being swallowed up. Their land is acquired by the government for development, and the residents given relocation housing, but 10% of the land is retained by the village to provide an income stream to the former residents, who no longer have land to farm. This land is not zoned for investment housing*, so the villages build offices. Unfortunately, in many cases they hire low-quality companies to develop the land for them, and the office space created is similarly low-quality. This results in the newly developing fringe of the city being dotted with new office towers at major intersections, with the rest of the land being occupied by one-story brick warehouses and shops, relocation housing blocks, and vacant lots. It is not pretty to the eye, and with office stock more than doubling in an already shockingly cheap market, it probably will not be pretty to office investors either.
Having said that, after looking around in “New East City,” I have to say that the quality of construction is high, the shipping and logistics positioning seems reasonable, and the phasing of development, with the essential government services such as customs coming in first, makes sense. It’s not a Potemkin village - but I don’t know about the rest of the new stuff.
*It’s actually not a zoning restriction but a land use designation - all land being owned by the state.
Don Johnson is a Senior Economist with AECOM in Shanghai.