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Shanghai on the World Stage

Presentation Summary, 12 June 2014

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014. All Rights Reserved 2



This paper provides a summary of a presentation ‘Shanghai on the World Stage’ held on 12 June 2014, at

which JLL shared its perspective on Shanghai’s future competitive position in a rapidly-changing hierarchy of cities.

A New Commercial Geography of Cities

JLL has been analysing ‘City Futures’ for more than a decade now as part of our Cities Research programme.

Its aim is to understand the ingredients of city success and to identify which cities are emerging as future rising stars and, crucially, how real estate is helping to shape ‘the competitive city’.

In this context, Shanghai’s competitiveness is assessed from four perspectives:

What does the real estate investment market tell us about city competitiveness?

How does Shanghai perform on the key city competitiveness indices from other leading authorities?

How does Shanghai’s broad competitive profile compare against other major global cities – namely

Hong Kong, Paris, London, New York, Singapore and Tokyo? What are the different shapes of commercial competitiveness?

What will determine Shanghai’s future global position as momentum continues to build over the next

decade. Does Shanghai have the ingredients and potential to become a ‘Super City’?


Shanghai - Real Estate Capital Flows

Shanghai and the ‘Global 300 Cities’

Source: JLL Cities Research Center http://www.jll.com/cities-research/Documents/cities_research/Comparison/cities-microsite/bubble/Clustering.html

Shanghai is positioned 8th in the world for ‘Commercial Attraction’

As an initial point of reference, JLL has defined its ‘Global300 Cities’ in terms of commercial attraction based

on a basket of variables, including economic size, corporate presence, connectivity, real estate investment and commercial real estate stock.

The ‘Global300’ are the world’s most populous, productive and connected cities; their one billion citizens are

responsible for over 40% of global economic activity.

These 300 cities represent the bedrock of business activity; they are home to most MNCs, to virtually all the world’s international-grade commercial stock, and are the overwhelming focus of international retailers,

international hotel brands and real estate investors.

The ‘Global300’ universe highlights the familiar pattern of domination by Tokyo, New York, London and Paris. Other cities in the Top 10 include Los Angeles, Chicago, Seoul, Washington DC and Moscow.

Shanghai is positioned 8th in the world; Beijing sits just outside the Top 10 in 11th.



Top 30 Cities for Commercial Property Investment, 2011-2013

Source: JLL, March 2014

Shanghai is the 11th largest direct commercial real estate investment market

Despite the explosion of locational choice and the vast geographical expansion of MNCs, 50% of all direct

commercial real estate investment has been placed in only 30 cities for most of the last decade, and with a few exceptions - such as Shanghai, Beijing and Moscow – they have until recently largely been the same group of cities.

Shanghai is 11th globally in terms of direct commercial real estate investment activity, but sits in 8th position in terms of cross-border investment activity (and has recently been among the Global Top 5).

The important point is that there is now a lot of movement in the investment hierarchy. While Shanghai is 11th

in the ranking now, in 2004 it was placed 190th – a city which clearly demonstrates how quickly circumstances can change.


Investment Intensity Index

Source: JLL, June 2014

Shanghai has significant potential as a global investment destination

But to highlight Shanghai’s future potential as an investment destination, JLL has ranked cities and real estate

investment in a different way – not by sheer volume but by volume relative to economic size, i.e. investment intensity – which reveals that Shanghai is still not punching above weight in 44th position.

If Shanghai had the same levels of investment trading intensity currently seen in, for example, Singapore and

Hong Kong, its real estate investment volumes would be expected to be at least 50% above the record levels of US$10 billion (in 2013).

It is equally telling, however, that mid-sized, vibrant, often tech-cities are punching above their weight on this

measure. Among them are a good representation of European cities such as like Munich, Stockholm, Copenhagen; cities that are transparent, scalable, tightly-planned and with good quality of life, and which are attractive to corporates – features that appeal to cross-border investors .

London1

Tokyo65

Shanghai44

Oslo2

Munich3

Stockholm4

Copenhagen5

Warsaw6

Sydney7

Frankfurt8

Dusseldorf9

Gothenburg10

Singapore11

Paris12

Edinburgh13

Hong Kong14

Zurich15

Toronto16

Taipei17

New York25

Total Real Estate investment

(Q2 11 to Q1 14 rolling average)

by current city GDP



Today’s Super Cities

Can Shanghai join this exclusive group of ‘Super Cities’?

What these detailed investment volumes highlight is that the ‘Big Four’ – London, Paris, New York and

Tokyo - still lead in volumes, accounting for around 20% of all global transactions and one-third of global cross-border activity.

JLL define these four cities as ‘Super Cities’ – an exclusive group that possess a powerful combination of

economic scale and influence, deep corporate bases, highly liquid real estate investment markets and large, diverse and high-quality commercial real estate stocks.


Cross-Border Real Estate Investment Activity

Real Estate Investment, 2009-Q1 2014

Source: JLL, 2014

Shanghai’s cross-border real estate activity is higher than in Tokyo

A key characteristic of a global fluent city is openness and global engagement – and a different perspective on investment - that of domestic versus cross-border activity, which reveals…

London is by far the most international city with cross-border deals accounting for three-quarters of

direct commercial real estate investment. Paris, which is also a favoured destination for global capital, is a little way behind at 61%.

Interestingly, Shanghai and New York have similar profiles with about half of investment activity

involving cross-border players.

But Tokyo’s cross-border activity is only 31%; from a real estate perspective, Tokyo’s global fluency is being compromised.

DomesticCross-Border

London: US$94 bill New York: US$88 bill Paris: US$49 bill

Tokyo: US$50 bill

74%

26%46%

54%

39%61%

31%

69%83%

Shanghai: US$24 bill

53% 47%



Shanghai - City Competitiveness Indices

The business of cities is about being competitive across an ever growing agenda of indicators – measuring city

competitiveness has developed from being a relatively sedate academic field to become a frenetic industry.

Cities have nowhere to hide with over 150 different indices1 ranking cities from power base, quality of life, commuter pain and quality of air; from smartness to greenness, from innovation to youthfulness.

Shanghai’s position on key city competitiveness indices:

Core Economic and Financial Power Indices

In the Z/Yen Global Financial Centres Index (measuring financial skills, business environment, market access

and general competitiveness), Shanghai sits in 20th position. But its position will surely rise given the government’s commitment to developing the city as a global financial centre.

Shanghai attains a similar rank (18th) on AT Kearney’s Global Cities Index, which measures international

business activity, human capital and culture. As the Index also includes a measure of political power, Beijing sits in a higher 11th position.

Innovation and Education Indices

In the 2ThinkNow Innovation Index, Shanghai’s 29th position out of 450 cities is respectable and not out of line with its Asian peer cities. It is once again revealing to see some of the smaller agile cities – such as Amsterdam and Munich - in the top ranks. Shanghai’s competition will not only come from other mega cities.

In the QS World University Rankings, Shanghai is 20th. While the city’s university infrastructure may not yet be competing with the global winners in Europe and the United States, massive changes are underway in this sector across the globe, which will create new opportunities for the city.

Networks and Destinations Indices

The Ericsson Networked Society Index covers the use and effectiveness of ICT; Shanghai scores reasonably well in 20th position alongside Beijing.

The Global Destination Cities Index looks at international visitors – which are powerful catalysts for nurturing and driving the growth of creative industries and urban culture. Shanghai ranks in 14th position.

1 The Business of Cities, Greg Clark, JLL, 2013. http://www.jll.com/Research/jll-city-indices-november-2013.pdf


Core Economic and Financial Power Indices

Source: Z/Yen, AT Kearney

Innovation and Education Indices

Source: 2ThinkNow, QS

Networks and Destinations Indices

Source: Ericsson, Mastercard



Global Real Estate Transparency Index, 2014

Source: JLL, LaSalle Investment Management, 2014

www.jll.com/Transparency

Shanghai – a ‘Semi-transparent’ real estate market

Wrapping around these competitiveness indices, from a real estate perspective, is the question of transparency. JLL undertakes a detailed survey of market transparency every two years – the 2014 results have recently been released.

Shanghai is at the top of the ‘Semi-Transparent’ category. The city has moved steadily up the rankings in recent years, but progress has slowed in 2014. While the gap in transparency with China’s Tier II / III cities has widened, other major global cities have started to catch up.


Shanghai – The Shape of Competitiveness

JLL’s Competitiveness Cobwebs

Source: JLL, 2014

Shanghai’s competitiveness cobweb

Different styles of city can perform well, and their performance on different indicators gives them a shape – we plot these on JLL’s Competitiveness Cobwebs

For Shanghai and its peer cities, JLL has scored indicator strengths not just on size, wealth and GDP growth,

but also on connectivity, corporate presence and real estate activity so that, when transferred visually into a competitiveness cobweb, the shape of the cities’ comparative strengths becomes more obvious.

All seven cities show sturdy profiles:

London, New York, Hong Kong and Singapore have relatively rounded shapes reflecting their status as dynamic, globally-connected business hubs.

Tokyo and Paris are compromised by weaker growth dynamics.

Shanghai is weaker on operational risks, real estate transparency and the depth and quality of its office stock.



Shanghai – Future Momentum

JLL City Momentum Index

Source: JLL City Momentum Index, January 2014

http://www.jll.com/cities-research

Shanghai – the world’s 4th most dynamic city

In order to capture cities that are successfully transforming, JLL has produced its City Momentum Index

which tracks speed of change. Covering the Top 111 major established and emerging business hubs across the globe, the Index measures each city’s short-term socio-economic and real estate momentum, and also combines measures of ‘future-proofing’ – whether a city has the essential ingredients to ensure longer-term

sustainable momentum in the smart, digitally-enabled knowledge economy.

The top performers are:

1. San Francisco – the world’s premier technology hub.

2. London – a global city by any definition and a city that is going through huge transformation.

3. Dubai – a city which has come to redefine urbanisation over the past decade and which is now regaining momentum that it lost in the Financial Crisis – a result of vision and supreme connectivity.

4. Shanghai – a city that has been fast-tracking to maturity.


Real Estate Evolution Curve

New Millennium, 1999-2000 Pre-GFC, 2007

Today, 2014 Forward View, 2025

Source: JLL, 2014

Shanghai leapfrogging to ‘Super City’ status

Tracking the progress of Shanghai along JLL’s ‘Real Estate Evolution Curve’ over a 25-year period from 2000 to 2025 highlights the city’s rapid momentum - from an ‘Early Growth’ phase at the turn of the Millennium to its ‘Transitional’ status today, and potentially leapfrogging to ‘Super City’ status by 2025, if not sooner.

Factors supporting Shanghai’s progress to ‘Super City’ status include:

1. central government’s commitment to transform the city into a truly international financial and trading centre;

2. the evolving geography of corporate business and the rise of China’s domestic corporate base;

3. the city’s deepening real estate liquidity, with real estate investment volumes expected to be at least 50% higher than today’s levels, supported by improving transparency and financial deregulation; and

4. an evolving infrastructure and commercial real estate stock that promotes business efficiency.



The Super Cities by 2025

The role of real estate in Shanghai’s future success

And the real estate industry has an essential role to play in Shanghai’s future evolution to ‘Super City’ status by:

providing the scale and quality of commercial real estate stock that will enable Shanghai to grow into

its ‘new skin’ as a ‘Super City’, even if this means short-term market disequilibrium;

doing more on the ‘green building’ front, which not only makes sense environmentally but will increasingly be a key selling point for investors and corporate occupiers;

improving real estate transparency as an essential ingredient to a global fluent city; and

not forgetting that good urban design is an essential ingredient of city success and plays a major role in quality of life.

The sheer visual power of the Pudong skyline is testimony to Shanghai’s ambition and future position as a ‘Super City’


For more information on JLL’s Cities Research visit www.jll.com/cities-research

Contacts

Rosemary Feenan

Global Research, JLL

[email protected]

Jeremy Kelly

Global Research, JLL

[email protected]

Shanghai Contacts

Anthony Couse

Managing Director

East China

+86 21 6133 5555

[email protected]

Michael Klibaner

Head of Research

Greater China

+852 2846 5276

[email protected]

Joe Zhou

Head of Research

East China

+86 21 6133 545

[email protected]

http://www.jll.com/cities-research

mailto:anthony

mailto:anthony

mailto:[email protected]






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COPYRIGHT © JONES LANG LASALLE IP, INC. 2014.

This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report

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