Commercial real estate managers face challenges

CBRE has recently released its 2014 China Occupier Survey report that looks at trends in how multinational corporations are managing their commercial real estate portfolios in China.

Despite stating they face serious challenges such as cost escalation and a weak economic outlook, over 68 percent of survey respondents said their firm will continue to add headcount in the country over the next three years. Meanwhile, 52 percent said they believed their organization will also continue to expand geographically within China.

The report was based on responses to a questionnaire distributed to commercial real estate managers. Optimism varies somewhat by industry although most service companies showed a stronger intent to expand than manufacturing companies.

The preferred destination for expansion/relocation is eastern China, with Shanghai standing out as the number one choice for multinationals considering a new China headquarters. The opening of the free trade zone in the Pudong New Area will likely further enhance Shanghai's allure as a corporate headquarters.

Occupancy costs are the number one factor commercial real estate professionals consider in choosing a new location, followed by quality of infrastructure and building quality.

The CBRE report has identified several trends that may develop in the future, in particular for cost-sensitive industries like manufacturing:

1) The emerging trend of relocating to decentralized areas, which bodes well for decentralized submarkets that have a supply of high-specification buildings and well-equipped infrastructure to support them.

2) Average to high-quality buildings in decent locations will remain an option for occupiers.

3) Preleasing before construction completion is becoming increasingly common and this will continue. In order to explore different options available in the market, occupiers will start to plan further ahead (sometimes two to three years) before their current lease expiry to secure the next lease at a competitive price.

From an employee's perspective, meanwhile, public transportation accessibility is almost unanimously rated as the most important factor in the workplace, followed by indoor environment/air quality and sustainability. This implies that transportation networks such as subway lines will certainly have a significant impact on the success of any new district or decentralized building and suggests employees are now more aware of the importance of a healthy working environment.

Commercial real estate (CRE) professionals taking the survey said they expected telecommuting and mobile working will be increasingly used within their organizations. At the same time, they seem to be taking little initiative to adapt new technologies that could enable more efficient business communications and help achieve their top goal of cutting operating costs.

In terms of commercial real estate management, around a quarter of organizations surveyed still allow their local businesses to make final decisions on property, but 55 percent intend to better centralize their CRE functions. Corporate purchasing and procurement departments continue to become more involved in China real estate decisions, a trend likely driven by the need for cost control amid a slowing economy.

The survey also said that almost 60 percent of China commercial real estate functions, whether separate or embedded in other departments, reside outside the Chinese mainland, even though the distance may lead to delays, bureaucratic interference in decision making and missed opportunities.