Concrete Analysis

Shanghai shows it’s serious about using underground space

As above-ground space continues to be developed, officials are digging below the surface to create extra leisure and retail space that offer value

PUBLISHED : Tuesday, 20 May, 2014, 2:49pm
UPDATED : Wednesday, 21 May, 2014, 1:49am

Shanghai is one of the largest cities in the world and is expected to continue to grow in the future.

As with other major cities, as Shanghai expands, more above-ground space will be developed.

At the same time, Shanghai's population will require better-quality space to live in, to work in and to spend their leisure time in.

One resource that has the potential to be better developed and used in Shanghai is the city's underground space.

Taking into consideration the large amount of underground space there already is in Shanghai and as an indicator of how seriously the municipality is taking its existing and future underground property assets, the Shanghai government recently put into practice a new directive titled "Shanghai Underground Space Planning and Construction Regulations".

Its main purpose is to ensure the enhancement of planning and construction management of underground space development in Shanghai. According to the document, all development of underground space should be in line with the overall development plan for the city.

This is all well and good, but how will the new directive add value to underground property?

We believe the most important influence this directive will have is to considerably improve the quality of underground space and make it work better for the owner from a sales and leasing perspective.

Underground space in Shanghai has always been considered as an afterthought, almost invisible, with the main focus being the economic viability of the above-ground space.

Even today, when considering commercial projects in the city, the quoted figure for the gross floor area of individual projects does not take into account underground space.

With the new measures incorporated into the directive, we believe underground space in Shanghai will become more visible and will be seen in a better light in terms of monetary worth.

From now on, this space will be considered and scrutinised in greater detail by potential investors and current owners when calculating the overall investment returns for commercial projects.

Because this space will be worth more, investors and owners will have a vested interest in maintaining it well or improving it. We believe underground space in the city will be better managed in the future to protect or increase its value.

If underground space in Shanghai is better developed and managed in the future, particularly underground space used for retail, cultural and leisure activity, it will bring more visitors to the locality.

In turn, more visitors mean greater customer footfall, and this traffic is good for businesses in the same area, be they above ground or underground.

Looking to the future of the property market in Shanghai, as above-ground developable land becomes a rare commodity, we expect underground space to be exploited a lot more.

There are many opportunities associated with underground space in built-up urban areas. For example, for the private sector generally in Shanghai, going underground represents an opportunity to ensure business continuity.

Increasing demand for land in developed parts of the city has made purchasing property pricey and has put landlords on a stronger footing when businesses are wishing to lease space.

In Shanghai, in many instances, this pressure has resulted in leases often being short and expensive - making it sometimes difficult for occupiers to plan for the future.

Therefore, if commercial underground space is well developed and managed in the future, some businesses will find the underground option particularly attractive for applications like data centres, as it could provide a secure, long-term home.

Additionally, keeping the data that flows through a data centre safe is an important consideration. Build a data centre below ground and it will be shielded from cosmic rays or electromagnetic interference.

Going underground also provides an energy-saving opportunity, because of the more stable temperature. During Shanghai's hot, humid summers and cold winters, underground facilities would save on cooling and heating costs.

To sum up, surface land is a finite resource. As Shanghai continues to expand, more efficient use of land will come to the fore as the amount of developable surface land diminishes.

When underground space is better developed and managed, it is made to work harder from an economic perspective, and when this happens, its value increases in terms of its actual physical investment value and its value to the local economy.

Shaun Brodie is head of China strategy research at DTZ