Shanghai is a blossoming city, even if many of the pedals have already fallen from the bloom since the boom of the 1990s. It’s still a city on the grow and nothing says this to you like the constant concert of spiraling cranes above the city. It’s now as bad as it used to be, but it’s still better than any other city I’ve ever seen. It’s easy to understand why they’d want all the space, but why all the beautiful art in architecture?
From the Jin Mao Tower to the skywards spiraling spires of Plaza 66, none of the modern high-rises can do much but pale behind the picturesque beauty of the Pearl of the Orient TV Tower in Pudong, though they all try. But why? Surely it costs a premium to build such fantastic testaments to what man may build, but with the price tags associated, who would bother?
The short and simple answer is “everyone”. Many companies and investors flocked to Shanghai in the 1990s when the markets relaxed and the city stepped up their efforts to reclaim their place as the undeniable hub of the orient, and their efforts have been embraced by the prosperity of their successes.
In 1999, half of all the worlds high-rise cranes were working triple time over just one city, and city was, yep, you guessed it, Shanghai. After the Cultural Revolution, the city worked hard to preserve the old city while mixing it carefully with the new, ideal city, and as a result, growth was limited. When these restrictions were readdressed in the 1990s, the city was free to boom, and boom it did.
The growing pains were terrible. Construction dust was everywhere, the streets and sidewalks were cramped with commuters who should have been on tunnels or in bridges, which the city was busy building, but it would take some time. That time has passed and what’s left in its wake has been a testament to modern civic planning like no other city I’ve ever visited.
But again, if space is what you’re REALLY after, why waste your time with making it fancy?
One important consideration is that, if your company is looking to take up an Asian headquarters, you could put an ugly low-rise in Tokyo for $300Million, or you could build an tall, gleaming work of art in Shanghai, take up only the top twenty floors, still have all the benefits of accessibility and technology, plus shave a good $50Million off the price tag. For that kind of savings you could bring all your Tokyo affiliates in to for a week at the Four Season, cover their airfare and still have tens of millions left over… and that’s not to mention what you’re doing with the other twenty floors of your building.
At those kinds of prices, you could leave the other twenty floors vacant if you had to, but you don’t have to. As it turns out, vacant space and Shanghai proper don’t mix well, the outcome being immediate tenancy and surplus income sufficient to repay your investment while providing your corporation with a headquarters that’s not only free, but profitable.
In 2000, I read that 40% of Shanghai commercial properties was vacant, and that in the Pudong district it was almost 60%. With that in mind, how could you possibly expect that a new tenant could ever want to take up space in your building? Easy, you make it a landmark. It only costs a couple extra percent on the total price, but the yield is easy to spot, people know which building you’re in just from a sweeping glance at the skyline.
Well, by 2003 when I took up permanent employment in the real estate field, all that vacancy was taken, plus any vacancy that might have come up in the myriad new buildings that were freshly completed, plus much of what was expected to come on the market in the coming year.
So in the end, perhaps it didn’t impact vacancy rates (or the lack of therein) as much as it was intended, but the market will grow fierce again, and the money is already spent. If vacancy rates return to a rate above 5%, would you rather house your international conglomerate in a big, nondescript, rectangle, or would you rather house your operation in a memorable work of art. Odds are the price will be about the same, and if it’s any higher, it will be pennies on the dollar for your business.
We’ll get a better idea what property values and rental rates will do after Expo-2010 hits, but until then, the experts are saying buy early and buy often.
