Top factors impacting business park investments in China
Investors are considering diversifying factors when making investment decisions in business parks.
In the past two years, the investment volume of business parks has increased significantly, becoming one of the hottest property types in China. JLL invited investment institutions that have been most active in China in recent years to take a survey regarding business park properties.
Figure 1: AUM (denominated in RMB) of Survey Respondents
Source: JLL North China Research, 4Q22
Urban capacity is the premise of the business park investment
As a result of the survey, we found that over 70% of investors focus on business park properties in and around first-tier cities. This is because of the concentration of top-level industrial resources, which provides a competitive environment and helps improve the operation model and products. Thus, first-tier or strong second-tier cities have become the main destinations for business park investment.
The location value of business parks outweighs the business logic of the properties themselves
Nearly 60% of investors said that they value the overall regional planning in terms of location value, the industrial environment and the clustering effect of the region, much more than infrastructure and accessibility. Location value is reflected in key data, such as rental income and occupancy rates, which directly influence the investors' decisions.
Tax reductions and subsidies are the most attractive government support for investors
The development of business parks relies heavily on initiatives by local government that facilitates the business parks as they mature rapidly. These initiatives include policies such as land use, financial subsidies, business development systems and service platforms. The main purpose of financial support is to form a favourable investment environment that attract the inflow of enterprises and capital. Financial support and additional industrial guidance from the government also make industrial clusters more effective.
Asset management determines the long-term development of business parks, while location value and government support are at similar levels of importance
Asset management is central to operating performance at the micro level for both investors and asset managers. For example, as one of the best growing areas in the Beijing business park market, Shangdi area has several projects with vacancy rates higher than 20%, while the market average remained below 5%. This shows that even in one of the regions with the best industrial development and the greatest policy support in China, some projects have yet to fully capture market opportunities due to insufficient asset management strategies.
Investors remain highly enthusiastic about China's business park market, which we believe will help pave the way for business parks to become a mainstream investment property type. With the development of REITs leading to a clearer exit strategy in the future, the business park market is expected to attract more capital input and usher in further development and upgrading.