Chinese Cities Growing Fast

TCBN: Greetings everyone, I’m Michael McCune, and this is The China Business Network.

Four years ago, Ryan Botjer returned to China to start up Tishman Speyer's PRC operations. Now, the company has 60 staff across four offices working overtime to pursue opportunities and manage large developments in multiple cities. We caught up with Ryan by phone at his office to discuss the opportunities presented by China's urban development, the impact of the Chinese stimulus package, and the manner in which Tishman Speyer seeks to differentiate itself in a hyper competitive market.

So Ryan, we always talk about the fast pace of development in China. From your perspective in commercial real estate development, what facts can you bring to floor here to help people have a sense of the dynamism of the PRC market?

BOTJER: I think it’s a we talked about the real estate and real estate development , you have to take a step back and take a look at the big picture of what’s happening in China. I think that is really the migration of people from the rural areas into urban centers. We’re seeing a mass migration that has happened started maybe 25 years ago or so, and that process has continued. It’s anticipated that by 2025, an additional 350 million people or so will move into urban centers in China. You’re going to see a collection of these massive large cities – 350 million people is the size of the US population! – that’s going to be moving over the next 15-20 years. That creates huge opportunities for real estate, for both residential development, commercial development - office as well as retail. It also creates great opportunities for infrastructure development. We’re seeing that play out across China.

McKenzie actually did a study of this. They anticipated that if all of this migration continues and happens, there would need to be roughly 40 billion square meters of new floor spaces built within next 20 years to provide necessary work/living space for people in cities as they grow and build out. That is equivalent to roughly ten Manhattans being built. So the scale of what we’re talking about is absolutely enormous. Of course, it’s not only on the commercial development side of it, but also on the infrastructure side of it, and the interconnectivity that we see happening between mega urban centers. It seems like almost every day you read in the newspaper in China a new mass transit project or a major development that the country is launching that is shrinking these cities and the spaces between them. An example would be Beijing to Tianjin, where before the Olympics they opened up a high speed train that now connects the cities by 29-30 minutes. Previously, you’d have to drive 3-4 hours. 

In December, for instance, they just launched a new train from Guangzhou to Wuhan, which cut the travel time between those cities to 3 hours, which was previously 10 hours. I would say that this mass migration into the cities is creating huge opportunities for development and commercial development within those cities, but also creating great opportunities on the infrastructure side, as these mega cities become linked through mass transit.

TCBN: Well let’s talk about these other cities. We always talk about Beijing, Shanghai, Guangzhou, etc. Without getting into parsing what’s a tier 1, tier 2, tier 3 city, certainly there are cities on the rise that we haven’t in the west really even heard about yet. I wonder if you could talk about the differences you see with respect to the way which different local governments go about urban planning and how that might impact the opportunity on the horizon.

BOTJER: Sure. I think that each city has a very dynamic view of the future. China they think in terms of 5 year plans. If you go and visit urban planning museums that exist in almost every city in China, you’ll see how that city’s leadership thought out the future. One of the advantages that China has is typically they can take a long term view in terms of what they’re trying to achieve. You’re right, the general parameters people think about in terms of major development is the cities along the eastern seaboard – Beijing, Shanghai, down to Guangzhou - that’s received the most attention. We’ve also seen from the central government a major effort to push into the interior side. So the development, for instance, Chengdu-Cheungching corridor, the development of Wuhan and other major urban centers in that area. What’s interesting is, over the last 5-10 years we’ve seen increase of sophistication from urban planners in 2nd and 3rd tier cities. Many go to US or Europe to train and understand how other cities work. 

For instance in Tianjin, the planning department in Tianjin typically sends a couple people a year to Berkeley to study urban planning. They’re not unique in that nature. What we’re seeing is across China, as these cities grow and increase sophistication and understanding of how other cities have managed this growth, the challenge, I think, is it’s happening on unprecedented scale. The question is whether or not they can put in infrastructure fast enough in 2nd, 3rd tier cities to be in place to absorb population growth that’s happening and the commercial development that’s happening.

One of the key dynamics we’re seeing in a lot of 2nd or 3rd tier cities is the development of subway lines and light rail lines, which is going to take on increasing importance as automobiles become important part of everyday life for Chinese people in 2nd and 3rd tier cites. What I can say, in our experience of talking to urban planners in some of these cities, is increased understanding and sophistication in terms of what are some of the challenges they face, and where they see opportunities to expand their cities that previously probably you would have only found in Shanghai, Beijing, and some of the more mature cities.

TCBN: Ryan before we wind up our interview here today, just taking this all into context and looking at how you see opportunities for your own business, I wonder how you seek out to differentiate what Tishman Speyer has to offer versus so much competition from so many sources. I gotta imagine every group that could finance construction and commercial development outfit is there and outfitted. Where do you guys look to stand out and compete? 

BOTJER: China’s not a capital constrained market at this point. We believe that in order to compete in this market you have to bring some sort of value creation to the real estate side, that it’s not just about how much money you have, but what can you do with the land or asset or building that is somewhat unique, or changes the dynamic of the game. I guess there are certain advantages that Tishman Speyer has because of our global reputation, our focus on Class A buildings, and really our focus on green development. I think that this issue is becoming ever more prominent within China as the central government look sat the environment and considers sustainable development, which I think become an even bigger buzzword in China as these major urban centers developed over the next 20 years. How do you do it in a way that minimizes the degradation of the environment? Green development, sustainable building is going to become ever more important. We have a track record in that, having built green buildings in the US, Europe, Brazil, and many of the markets we operate in. I think that’s an area where we look to compete because we have real expertise, knowledge, as well as an understanding of what are the operational benefits these assets. So that’s one area where we look to take advantage of our global knowledge and expertise. 

TCBN: I’ve been speaking today with Ryan Botjer, who heads up Tishman Speyer’s China business operations. Ryan, we wish you the best of luck in this highly competitive market. Look forward to having the opportunity to speak with you again in the future, as the urban development continues apace in the PRC.



Ryan Botjer heads Tishman Speyer's business in China and is based in our Shanghai headquarters office, which he established in 2006. Previously, Mr. Botjer was part of the company's leadership development program, in which he was involved in the formation of Tishman Speyer's Listed Property Trust (LPT) in Australia and the development of the company's emerging markets platform. From 1996 to 2001, Ryan lived in China, where he served as chief operating officer of Asia Pacific Real Estate Ltd. Mr. Botjer speaks Mandarin Chinese. He graduated from Colgate University with a BA and received his MBA from Georgetown University.