Corporate realty moves to growth model
By Jia Hepeng (China Business Weekly)
Updated: 2004-09-16 09:37

With improving economic performance across Asia-Pacific, corporate real estate consumption in the area has shifted from the traditional strategy to save costs to a new model focused on business growth, according to an industrial report.

The report, the third Corporate Real Estate Impact Survey (CREIS 3) across Asia-Pacific region released by Jones Lang LaSalle, also indicates China has been identified as one of the principal destinations for offshore industrial activities and the trend towards further growth in industrial offshoring is expected to continue.

"Traditionally, big multinational companies mainly consider how to save their operation costs through leasing or buying industrial or office properties, but now, more and more of them begin to think how to use their corporate real estate as a new investment tool," said Jason Whitcombe, national director for corporate solutions at Jones Lang LaSalle Beijing.

According to Whitcombe, during the impact survey, 57 per cent of the respondents to the survey stated that while cost reduction remained important, it was not the overriding objective in setting real estate strategy.

Data for the third Impact Survey was gathered from more than 70 organizations in the services, technology, banking, oil and entertainment industries as well as government agencies. These respondents occupy approximately 6.7 million square metres of office and industrial space in the Asia-Pacific region.

The previous two impact surveys made by Jones Lang LaSalle, which were published in July 2003 and January 2004, identified cost reduction as the most significant driver of corporate real estate strategy. In the latest survey, it was clear that supporting business growth has emerged as a dominant factor in setting corporate real estate strategy.

"For corporate property developers, the new trend requires them to seek better ways to develop, install the newest technologies and offer high-quality property management services," Whitcombe said.

They cannot be satisfied with low-price or higher ratio between quality and price, because corporate occupiers now are more concerned to make their office or factories appreciate, Whitcombe said.

The changing trend of corporate real estate consumption is echoed by the growing offshoring of industrial activities to China or India by Western and Asian corporations. A number of major overseas corporations including Motorola, Philips, Toshiba, Procter & Gamble and Whirlpool have announced expansion plans in China and this will pave the way for a more robust industrial market in China.

Although offshoring of manufacturing processes dates back 40 or 50 years, over the past five years, there is greater offshoring in office-based, service sector activities.

Multinationals' offshoring of their major businesses to China or India greatly lower their operation costs and promote the strong demands on local property markets, enabling their corporate real estate to appreciate more easily, said Whitcombe.

The CREIS 3 reveals that 90 per cent of the respondents stated that offshoring has met or exceeded their expectations in terms of cost savings while 93 per cent felt that their expectations were met in the area of access to local market.

The offshoring trend is expected to continue to grow. Just over 30 per cent of the firms that responded to the CREIS 3 have offshored some activities already and this proportion is expected to more than double over the next three years. The potential for increase is also highlighted in Jones Lang LaSalle's recent survey of corporations in the United States where over 70 per cent of firms were planning to increase their offshoring activities over the next five years.

David Hands, managing director of Jones Lang LaSalle Beijing, said that international firms' offshoring to China brings both chances and challenges. Chinese property developers have more opportunities to attract major international dwellers, but they will also face critical review of these companies.

Compared with India, China has more ready luxury office buildings, but this also makes Chinese developers face the risk of not meeting international clients' demands, Whitcombe said.

To solve the problem, Chinese property developers have to seek help from more experienced international property consultants and property management firms, Whitcombe said.