Companies moving out of central business districts to save money

Rising rents and wages, and expansion, drive relocation of businesses, including Fortune 500 firms, to cheaper, less central offices

PUBLISHED : Wednesday, 11 September, 2013, 12:00am
UPDATED : Wednesday, 11 September, 2013, 4:58am

Rising rents and wage costs on the mainland are driving more big businesses to move out of city centre offices.

The wave of decentralisation, fuelled also by normal business expansion, has prompted more developers to build commercial projects in second- and third-tier cities.

Among the high-profile businesses moving from core to non-core, or even less mature sub-markets, are many Fortune 500 firms, says property consultancy Cushman & Wakefield.

The latest example is hi-tech United States manufacturing firm Honeywell, which has relocated its Beijing office from the Eagle Run Plaza in the Liangmahe submarket of the capital to the relatively new C&W Industrial Park in the Jiuxianqiao submarket, located on the city's northeastern edge.

The new office building spans nearly 15,000 square metres and has allowed Honeywell to consolidate all of its Beijing employees into one location.

Fellow US global giant Nike last year announced a long-term partnership with Tishman Speyer to strategically relocate its greater China headquarters to The Springs, a development located in northeast Shanghai, in the first quarter of next year.

A spokesman for another US hi-tech company, Eaton, said expansion and growth needs were the main reasons for the company to move to a business park in Shanghai, where its Asia-Pacific headquarter office is now located.

"As Eaton's businesses continue to grow, new investments are being made in new facilities to support the increasing demand generated in the Chinese market," the spokesman added.

Eaton's Asia-Pacific regional headquarters is in the International Business Park of Changning district in Shanghai. The company bought the first building, which occupies a total gross floor area of approximately 10,000 square metres, in 2009, and expanded two years later with the purchase of an additional 6,000 square metres.

Sunny Zhang, head of China research for Cushman & Wakefield, said rising rents were a primary force driving the decentralisation trend in office selection. Many leases signed during the financial crisis - when rents were much lower - were coming to the end of their terms, he said.

Since then China's economy has gradually recovered, with office rents picking up in tandem to surpass previous historic highs.

By the second quarter of this year, office rents in Shanghai were up 43 per cent from the financial crisis in 2008; in Beijing, they were 138 per cent higher. As lease terms neared expiry, fast-growing occupancy costs would naturally be seen as a strain on companies' finances, according to Cushman & Wakefield.

"Companies engaged in consulting, IT, research and development, and various kinds of business processes, are all interested in moving a portion of their staff to decentralised office locations. This is especially the case in Beijing and Shanghai because downtown rents are so high," said Andrew Ness, head of research at DTZ.

The trend has lured more developers to build large office projects in decentralised areas. For example, Singapore developer Mapletree is building a 5 billion yuan (HK$6.28 billion) office development with a total gross floor area of 297,000 square metres in the Minhang district of Shanghai.

"Office decentralisation is a natural trend for any city undergoing urbanisation, and given China's sustained economic growth and continued urbanisation, the scarcity of land, the high cost of renovating old buildings, increasing office rents in the CBD area, and the rapid expansion needs of multinational companies the process will continue in the near future," said Quek Kwang Meng, regional chief executive of China and India for Mapletree Investments .

With more multinational companies choosing to relocate their China headquarters operations to Shanghai, the demand for premium-grade office space in the core CBD area will continue to increase as a result.

"Concurrently the demand for decentralised grade-A office space will also grow as these companies seek alternative office space for cost savings, office upgrading, expansion or consolidation, and even for self-use purchase needs, said Quek. Although more developers have arrived in recent years, with supply growing fast in Shanghai, grade-A rents will continue to rise under the weight of increased demand for space, Quek added.