16 Dec 2013
Demand for office space booms as the world’s factory looks to tertiary services
China’s service sector is on course to exceed manufacturing, in terms of output for 2013, according to comments made earlier this week by the chief of China’s General Chamber of Commerce (GCC) and data from the National Bureau of Statistics.
This latest landmark reflects structural economic reforms underway in China and is having significant implications for real estate.
Growth in demand for office space is a trend that’s set to continue, says Michael Klibaner, Head of Research for Greater China at Jones Lang LaSalle (JLL).
“In lower tier cities the professional industries are not as well developed but there’s a lot of new supply. Beyond 2015 I believe they’ll also reach a tipping point where demand will increase at an above-trend rate. The opportunities are huge.”
National data show services contributed 17.6 trillion Yuan to the Chinese economy in the first nine months of this year, overtaking manufacturing output, which stands at 17.51 trillion Yuan. Earlier this week, Zhang Zhigang, Head of the China General Chamber of Commerce, said this marks an historic change in the country’s economic restructuring.
In Shanghai financial services occupy the biggest proportion of Grade A office space (approximately 26 per cent.) But there is also huge growth from non-finance professional services. Accountants PWC, management consultants BCG, recruiters Michael Page and lawyers Clyde & Co have all increased their real estate footprints by between 25 and 200 per cent over the last six years. JLL also has increased its own space by 88 per cent.
Boosting the service sector is a central pillar of ongoing government reforms to drive growth through increased domestic consumption. In 2012 services accounted for approximately 45 per cent of the economy and was China’s biggest employer. As Michael Klibaner points out, this expansion is giving rise to a larger middle class, which in turn presents further real estate opportunities.
“The impact on retail will be huge, which is great news for real estate investors. A rising middle class will also drive demand for consumer finance, further boosting the service sector, so new opportunities will continue to present themselves.”