The Masterplan

The corridors to investment are opening up in the world’s second largest economy, which is home to the largest population on earth.

Yes, this is a familiar story, but also an evolving story. Particularly so when China is viewed as a series of economic clusters as opposed to a holistic entity. Specifically, once we hone in on Northern China, though, the accelerated rate of urbanization and development unveils a unique path that lies ahead.

In response to the sheer velocity of development taking place in Beijing and surrounding areas, policymakers felt that the creation of an urban cluster comprised of mega cities would drive integration and thus, collective competitiveness.

Issued by the central government in September 2017, the “Beijing Municipality Master Plan (2016–2035)” showcases a 20-year urban development framework for Beijing. So how does one decode all of this?

As core assets become increasingly scarce in more mature regions, the master plan adds a control mechanism into the commercial real estate supply equation in emerging regions. Running parallel to this heightened control is urban renewal and upgrades to inventory facilities, which will also ameliorate the shortage of supply.

Dubbed several names, authorities appear to have settled on “Jing-Jin-Ji” for the master plan. The Jing-Jin-Ji urban cluster is comprised of two municipalities (Beijing and Tianjin), 11 prefecture-level cities (including Shijiazhuang, Baoding, etc. in Hebei), and the newly established Xiong’an. Accounting for just 2% of the nation’s land area and 6.5% of the population, the Jing-Jin-Ji cluster contributes to 9% of national GDP.

As details surrounding the Jing-Jin-Ji cluster’s development plans have come to fruition, we expect the cluster to overcome obstacles and make breakthrough progress in infrastructural development and improved accessibility, in time better serving the region’s economic and social needs.

While new policies surrounding urban planning might be perceived as temporarily constricting the supply of office, logistics, residential and investment properties in the short term, the amalgam of transformations to spatial utility, profit modelling and deleveraging will, in the long term, create value for both investors and occupiers.

The scope of usage and occupiers for governmental and industrial assets are clearly defined in the master plan. Driven by a desire to optimise market value, developers and investors will then cooperate closely with occupants on not only the construction and transformation of spaces but also on asset management and operational processes, paving the path for sustainable development.

Another facet to the series of transformations taking place will be an evolvement in the channels through which developers and investors extract value. The traditional profit-making mode dominated by property sales has reached a bottleneck. Developers and investors will instead seek to derive profits through rental returns and provision of value-added services for occupants. This will alter the way in which industrial investors, resource platform operators, property managers and construction service providers operate.

Separately, the gradual liberalization of asset-backed securities will encourage developers and investors to deleverage and secure more direct financing. The force of deleveraging, paired with governmental measures to incentivize long term renewal planning will enhance the investment decision making process through greater transparency and will also lay the path for sustainable growth.

Bringing this all together, the Jing-Jin-Ji cluster is the only widespread cluster located in Northern China, rendering it a key force in shifting the national economic landscape. The delivery of new infrastructure over the next few years will cater to developers, occupiers and investors – who all have a new playground.

By Tin Sun, Head of Research, Northern China, CBRE.