Hi-Tech and metal bashing in the suburbs
While most of use are aware of the size and scope of Shanghai city itself, the metropolis area represents only one aspect of its business scope and wealth generation. Located for the most part out of everyday view, the various industrial districts surrounding the city, play a key role in its development and a supporting role for many of the service industries located within the metropolitan area.
When choosing a manufacturing or distribution centre, there exist a variety of issues which should be considered. These include the type of facility, its location, tax incentives, services and costs. All issues which can vary significantly across the different locations and according to different landlords.
A Shanghai workhorse
There are six key industrial areas around Shanghai. In the north Jiading, to the west Qingpu and Songjiang, Xinzhuang in the south and Waigaoqiao and Jingqiao in the South East. Choosing which industrial area will in part be based on the individual client requirement. For example, Waigaoqiao, Jingqiao and Xinzhuang stand out as the most logical locations for operators who need to be near to Pudong airport of Yangshan deep water Port. With the exception of Qingpu, which is about 40-km from the city centre, the other locations are about 20-km. For public transport Xinzhuang with the new line 5 and next year Songjiang, stand out as two of the most accessible.
Within the above areas, landlords vary from international developers such as Ascendas of Singapore to quasi government-owned and even village associations. It is useful to distinguish between the private developers and the quasi government-owned, because they may well have different objectives in attracting and later providing services for, their tenants. While private landlords will primarily be focused on real estate profit from their developments, the quasi-government landlords are often more interested in something quite different. For this group, the buildings and services are used as bait to attract Foreign Direct Investment (FDI) and future tax revenues (many landlords are set annual targets which they are set to achieve in these areas).
The above situation can throw up some variable conditions when it comes to negotiating on a suitable location. For operators who are likely to invest a significant amount in the capital formation of the business, this will provide useful leverage when discussing terms with many of the quasi-government landlords. Inversely, there will also be situations where this type of landlord will reject potential tenants, if their registered investment capital is deemed to be too low. Such a rejection could come, even if the company in question is a large, internationally recognised enterprise. A final aspect about this process, is that in such cases, landlords will often enquire as to the registered capital of the enterprise. The providing of information on which, is neither a particularly comfortable nor satisfactory state of affairs.
In terms of the incentives which landlords can provide, these broadly fall into the fixed and the variable. Variable incentives cover areas such as rent and rent free periods. Fixed incentives include tax rates and tax breaks for the location. Corporate tax rates usually have three bands (15%, 24% & 33%), varying according to the area of location. However, tax breaks are often offered on these, normally for periods of between 2-3 years. Apparently tempting, though less so given the likely time to profitability for any new enterprise! One final point to clarify if operators are exporting from the site, is the issue of VAT and whether it will be payable on exports.
Even if you view a physical building, this does not guarantee it has obtained its necessary certificates and licences. These will include (i) The ownership certificate (ii) Fire Safety Certification. For safety purposes, there are three main categories of buildings as defined by the Shanghai Fire Bureau which are divided into Category A, B or C. With Category A being the highest safety level (for gas and combustible products) through to Category C for lower level safety (non-combustible goods). Buildings may only host those activities/operations according to their accreditation of the above certificates. This is an important issue: for example a distributor of flammable materials may find an ideally located facility etc. which may be disqualified on account of its safety certification or indeed the landlord may not have yet obtained the ownership certificate. In such cases, resist the temptation to commit to the property and wait.
Does it have an ownership title
Finally, in terms of rental levels, the rates below give a general indication of the price variability across the districts surrounding Shanghai. Within each area there will also be significant differences, however, the below rates can at least be taken as a starting indicator:
|
|
Jiading |
|
Qingpu |
|
Songjiang |
|
Xinzhuang |
|
Waigaoqiao |
|
Jingqiao |
|
As with all real estate transactions, potential tenants should fully appraise themselves of the actual situation of any property before making a commitment. With industrial premises, the combination of tax incentives, investment objectives and licensing, mean it is important to be even more vigilant than might be the case for a conventional office.
