The Greater Bay Area (GBA) is a national initiative highlighted in the Chinese government’s 13th Five-Year Plan. Its aims are to build a globally competitive mega-region, and by 2035, to build a productivity cluster serving as a key facilitator of the Belt and Road Initiative.
Colliers has partnered with the Royal Institution of Chartered Surveyors (RICS) to co-author a report titled “Greater Bay Area: A 2030 outlook.” This research looks at future opportunities in the GBA from a real estate supply and demand perspective, layering with the consideration of how international operational standards will be adopted throughout the growing workforce and other related developments over the next decade.
Below are the key findings of the report that outline the opportunities and challenges emerging as the GBA develops.
More investors are keen to explore GBA opportunities
Over the last decade, investors paid more attention to the Yangtze River Delta, particularly to Shanghai. However, the investment and business arena has been gradually changing, especially after the Central government announced the Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area in February 2019. Findings from our “Annual Hong Kong Investor Survey Report 2018” support this analysis, where around 40% of respondents expressed their interest in investing in the GBA cities of Mainland China, particularly Shenzhen and Guangzhou.
Many GBA-based companies are growing rapidly. According to the government’s latest data, 20 companies among the 2019 Fortune Global 500 list are from the GBA – seven of which are based in Shenzhen, seven in Hong Kong, three in Guangzhou, two in Foshan and one in Zhuhai.
Anticipated growth in real estate needs
Under the GBA Three-Year Action Plan (2018-20) released in July, by 2022 the GBA is planned to be an incubator for world-class innovation, with appropriate infrastructure to facilitate the smooth flow of people and goods, and to improve liveability. The growth of innovative and high value-added industries is critical for achieving the goals of the GBA and to bring new life to the economy. As a result, the demand for commercial and logistics properties should grow, making them the most attractive sectors to investors and occupants who would like to capture the opportunities in the GBA.
Connectivity is key for a mega-region
Connectivity enables the GBA to be a globally competitive mega-region. Due to closer proximity, the GBA has the shortest travel time between main cities compared to other mega-regions. It takes less than an hour to travel from Hong Kong to Guangzhou, compared to more than three hours from New York to Washington.
Skilled labour needed to drive productivity growth
Research has shown that a skilled labour force is a more important contributor to productivity growth in cities than better physical capital. If the GBA is to close the productivity gap with Silicon Valley and other hi-tech clusters in developed markets, we believe that access to a large pool of skilled labour will be essential for sustainable growth.
However, it is problematic that the GBA has offered no specific plan to develop new schools. Although the Outline Development Plan includes a section on “Developing an Education and Talent Hub,” this appears to focus more on encouraging mutual recognition of education between Hong Kong, Macao and Guangdong, rather than significantly expanding the capacity of regional post-secondary education.
Hong Kong, Shenzhen, Guangzhou to be key office clusters
According to our “Annual Occupier Survey 2019,” 14% of occupants of Hong Kong offices indicated that they would like to expand into other GBA cities, while another 20% indicated that they would like to expand their footprint in Hong Kong. The growing enthusiasm for the Mainland Chinese market is expected to boost demand for office space in the GBA, with a key focus on Hong Kong, Shenzhen and Guangzhou.
In addition, in 2018, the GBA recorded over 74 million TEUs of annual container throughput, with these three cities’ ports ranked in the world’s top 10. The enhanced connectivity between these ports under the GBA initiative should result in synergies to facilitate further growth, as well as the upgrades of port facilities in Nansha in Guangzhou.
Improved infrastructure making decentralisation possible
According to a recent survey by RICS, 40% of respondents from Hong Kong said they plan to relocate or expand to other cities in the GBA. We forecast that office demand in the GBA will reach 21 million square metres by 2028, given the forecasted economic growth. Due to the relatively high rents in Hong Kong, emerging office markets across the border such as Nanshan and Qianhai in Shenzhen could serve as more affordable alternatives for incubators and start-up companies.
Challenges ahead
Despite the huge potential in the GBA, there are some challenges that need to be addressed so that the mega-region can fully unleash its untapped potential in the next stage of economic development.
Firstly, the differences in the economic systems and legal structures between Hong Kong and the Mainland will remain a challenge in luring international talent to the GBA. Different approaches to HR and to remuneration between the Chinese and Hong Kong economic systems also make it more difficult to offer competitive compensation packages for talent. Although the GBA Outline Development Plan discussed the need to increase foreign skilled labour in the GBA by drawing on the experience of Hong Kong and Macao, it did not address this issue.
Secondly, the cost of commuting between cities still exceeds that of intra-city travel. Companies would likely have to pay a premium for commuting labour, typically matching salaries in Hong Kong. This could, indeed, mean that there is little difference in cost between locating an employee in Shenzhen or Guangdong and Hong Kong. This adds an obstacle for companies when recruiting international talent.
Added to the above is the balance between cost and benefit for infrastructure projects. For every project undertaken, the cost-benefit analysis process must be rigorous, which implies the need for a uniform standard to ensure the benefits and drawbacks of each project are appropriately accounted for.
You can read the full report at http://www.colliers.com