Life of Guangzhou - Real Estate Plays a Crucial Role in Auto Market Development

Major Auto Clusters in Guangzhou are GAC Honda, Dongfeng, Nissan, GAC Toyota and GAC Hino. Regional Strength of Pearl River Delta is the established supply chain but high exposure to external market, noted Stuart Ross, head of Industrial for Jones Lang LaSalle China yesterday (July 29) in Guangzhou.

In 2009, China became the world's largest motor vehicle market both in terms of production and sales. As the country continues on a path towards motorization, China is rapidly developing manufacturing and R&D capabilities in its pursuit towards a "greener" automotive market. Jones Lang LaSalle's latest white paper <China's Auto Market: Shifting Into Top Gear> examines the key growth drivers and potential for China's automotive market, identifies the opportunities connected with R&D and "green" vehicles, and analyzes the relative strengths of China's emerging auto clusters. "To take advantage of the numerous new opportunities in China's auto market, automakers will have to consider many factors from market potential and strong local competitors to location and supply chain strategy," noted Stuart Ross, head of Industrial for Jones Lang LaSalle China.

According to the report, the wealth effect in the overall Chinese economy, the rapid development of China's housing market, and infrastructure have helped to create a larger base of demand in the auto market, government policies have also played an important role in spurring auto sales. In 2009, China passed the United States to become the largest market in the world for automobile sales at 13.62 million vehicles. "The volumes are impressive, certainly, and have become an increasingly important factor in fortunes of many of the world's auto companies, but it is the sheer potential of where this market can grow to that gets people really excited," Ross highlighted.

The auto industry is considered a pillar industry of China's industrial structure and real estate plays an important role in the development of auto industry. Clusters of manufacturing, assembly, distribution, R&D, and education are developing all over the country. "An automaker targeting the mid to low-end market may find it beneficial to locate in Wuhan or Chongqing, close to the growing consumer markets of Central and West Chin," Ross noted. "Export-driven companies may locate in coastal cities like Tianjin or Guangzhou to reduce logistics costs, while R&D programs may operate best in the Tier I cities of Shanghai and Beijing, benefiting from their high-quality talent pools. In addition, Tier I cities are also good choices for headquarters and marketing."

The white paper points out that the site-selection process for automakers is rather complicated because their real estate setups often contain a variety of functions, including manufacturing, sourcing, R&D, storage/distribution, headquarters, marketing, and training. Determining an optimal location will be based on a combination of the unique requirements of the operation and company as well as the environment the location offers.

Ross also mentioned, "Site selection is not the only way that the real estate industry can help push forward the development of the auto industry. In recent years, consolidation has been a hot topic as occupiers constantly seek cost-effective solutions to stay competitive." After years of expansion, many automakers have set up multiple functional offices across China and even across a single city. When a company's operation and management requirements increase, it should consider consolidating all of the functions into an integrated center that will also serve as the company's headquarters. Such consolidation will reduce real estate rental costs and streamline the company's operations.

"For new entrants and market veterans alike, many factors must be considered in location decisions. From government support, to attracting talent, to infrastructure, to the logistics system, and local characteristics, China has many auto clusters developing all over the country. Choosing the right site will impact profitability, operational integrity, and ultimately figure prominently in long-term success," Ross added.

The white paper also highlights that the rapid increase in the number of cars in China is putting an enormous strain on the environment and on energy suppliers. China may ultimately be the world's largest market for new energy vehicles, but the Chinese government still has bigger plans. They view the global market for "green" vehicles and renewable energy as one of the biggest industrial opportunities of the 21st century, and they would like to capture a major share of this rare opportunity.

(Reported by Shanna Chu)

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