The long-awaited blueprint on the Greater Bay Area (GBA) is here. The ramifications are sizable. And the opportunities for business and individuals alike are unmistakable.
The Outline Development Plan (ODP) for the Guangdong-Hong Kong-Macao Greater Bay Area, the master plan’s official title, is governed by a straight-forward concept – collective growth. Its ambition to transform the GBA into a world-class bay area economy by 2035 through infrastructure development sits at its core. And it’s success will hinge on economically-critical sectors, including the real estate sector, with its issuance delivering on its promising prospects.
The blueprint, which sets forth the strategic directions for the 11 cities in Southern China, can serve as a guideline for investors, developers and corporate tenants who are looking to make a foray or planning to expand their businesses in the GBA.
So what does this mean for property? Hong Kong, Shenzhen, Guangzhou and Macau will remain the preferred locations for corporate headquarters and will therefore continue to attract talent. The plan to develop the GBA into a pioneering innovation, tech and modern services hub, is expected to drive robust demand for offices and business parks in established and emerging business districts. Included in the ODP were details of financial and insurance sector cooperation between Hong Kong and Guangdong, which we expect will drive cross-border office leasing activity.
The organic growth of domestic Chinese corporations and expansionary requirements from Hong Kong-based enterprises will fuel additional office demand, particularly in Shenzhen, with a relatively higher concentration of activity expected in the Futian CBD and Qianhai. Hong Kong’s status as the key funding platform for the region will attract sustained demand from financial, professional services and technology firms, ensuring high office occupancy. Despite short-term economic turbulence which may occasionally slow leasing market momentum, Chinese companies will continue to be a major source of office leasing demand in Hong Kong in the medium-to-long run. Guangzhou is expected to remain a domestically driven market.
With innovation, technology and communications set to form pillar industries for the GBA, the region will see a strong pick-up in demand for business parks, data centres and laboratories. Although the ODP did not identify any specific cities to lead, from where the major science and technology parks are built and planned, we expect a high percentage of Research & Development activity – and therefore demand for space to host these functions – will occur in Shenzhen, Guangzhou and Hong Kong.
We predicted last year that the Greater Bay Area will rise as “the world’s largest bay area economy”. As we see it, the Greater Bay Area has many functional advantages already in place. It has two world-class financial hubs (Hong Kong and Shenzhen) as well as internationally-acclaimed airports and seaports. The launch of large-scale infrastructure projects that bring to life the ‘one-hour living circle’ that expedites the flow of talents, capital and goods will only add to its collective and existing strength.
This new development has clear and present implications for the property sector. After all, property are all about location, and location is all about connectivity. Given this reality, the Greater Bay Area initiative brings along an exciting chapter of growth to the real estate market.
For Hong Kong, the shortage of land and ongoing cycles of high prices for commercial and residential properties, has damaged affordability and posed a considerable bottleneck to the city’s future economic development. With the backdrop, the new GBA policy initiative comes at an opportune time for Hong Kong as it looks for incubators for it next phase of growth.
Think about the property market in Hong Kong – CBD office vacancy rates stand at 1%, industrial building vacancy at 2% and residential at 3-4%. These are incredibly low levels by any city’s standard. Then consider the fact that Hong Kong is ahead of many cities in its financial and legal systems, but will run into roadblocks if we do not act fast enough to enhance our competitiveness. This is one very plausible, long-term solution.
Last year the Hong Kong-Zhuhai-Macao Bridge unveiled the world’s longest sea crossing bridge. It is a centerpiece for China to develop the GBA to redress the long-standing development imbalance between the east and west coasts of the Pearl River Delta and boost economic development on the west side of the GBA.
More recently, increasing numbers of multinationals have started to establish business divisions in the Greater Bay Area to leverage on the commercial opportunities brought along by its connectivity. CBRE is one of the global companies that has established the Greater Bay Area as a new business geography before the blueprint was released.
These measures, backed by improved infrastructure, will create opportunities for Hong Kong and Macau residents constrained by limited land and social resources. Cross-border investment is likely to intensify upon the gradual implementation of these policies. Property sectors that rely on footfall, such as retail, will benefit from the increased flow of people. However, demand for hotels may not necessarily increase as day-trips will become more feasible.
We expect the GBA to remain a magnet for investment capital, with investment grade properties located in the core of the GBA likely to see strong demand growth. The emphasis on technology and advanced services will create considerable requirements for offices, business parks and high-end logistics facilities. Although the major focus of investment will be on Hong Kong, Shenzhen and Guangzhou, the likes of Foshan, Dongguan, Zhuhai and Zhongshan will benefit from spillover demand. Hong Kong will continue to top the league in terms of property prices but the gap with Shenzhen will narrow as the later moves further up the value chain.
Clarity provided by the blueprint underpins the development of all property sub-markets. The one-hour connectivity, enabled by the bridge or the high-speed rail, creates a great appeal for international and domestic corporations to set foot and expand their businesses in the Greater Bay Area. The industrial and logistics sectors are also set to receive direct advantage from the launch of other large-scale bridges and highway projects. We will see more developments coming to these sectors in the years to come.
Tom Gaffney, regional managing director, Greater Bay Area & Hong Kong, CBRE.