Shanghai

Savills Global Placement

Alex

Location: Shanghai, China
Dates: May to September
 
Name: Alexandra Gumuchian
Job Title: Graduate Surveyor
Graduate Scheme: Surveying, London
Start Date: September 2012

Alexandra headed over to join the Shanghai Savills team for a 4 month placement in May. Alexandra's blog is below, so do have a read to find out more about her experience and the Asia property market.

Penultimate Week

This week began with a follow up on the Chinese law firm I have been in contact recently. The partner whom I have been talking with has put me in touch with the firm's Office Manager. The outcome: the firm is interested in Savills' new SOHO Fuxing project however, as their lease only expires in May next year, it was decided to touch base in a few months.

Otherwise, Savills Shanghai have received a referral from Germany. We are told that the client, a German TMT firm has already visited properties around town with another agency. Fortunately, Savills' previous work history with the firm back in Europe is putting us in favour over here. This Tenant Advisory project is being overseen by Savills' agents in Germany, Hong Kong and Shanghai. It's the first international project I have been involved in. This means several conference calls. They are currently paying RMB 7 sqm/day and are looking to go down to RMB 5 sqm/day. This means more decentralised areas in Shanghai or older buildings if not Business Parks. My work has involved editing a formal proposal offer ( together with my boss), calling landlord agents to check availability and putting together an Initial Options list.

Finally, a client lunch with all the office agents. Business deals in China are often done over food. Never underestimate the power of a sponsored lunch. Both on the hosting and receiving side. Great opportunity to network and to catch up with colleagues.

Week 16

After carrying out a dozen cold calls, I obtained one successful response! (It is normal to get a low ratio of respondents).  A Chinese law firm has its lease expiring in May next year and is in two minds between renewing or relocating. As such they were interested to see what office buildings Savills could offer. My initial proposal was SOHO Fuxing, the development located in Luwan/Huangpu and the reason for my cold calls.

After further discussion with firstly the client and with my team Director, it was agreed that I should put together a brief combined market report and office relocation options covering the broader Shanghai market. This means creating an initial list of buildings which might suit the client's needs. The point of this is to make the client aware of its opportunities, current rent levels as well as to show what the agency team can do for them.

The firm's requirements are as follows: Size: 800- 1,000 sqm; Budget: RMB7-8 sqm/day; Area: Huangpu/Luwan, Xuhui, Jing'An; Timing: Q2 2014. The building they are currently located in poses two problems: firstly, it is old and secondly, it is strata-owned. Strata type buildings, that is office buildings that have been cut up and sold off to private investors, tend to have a poor property management service. Likewise, lease negotiations tend to be slow and long. As such, moving to a modern building would not only bring image benefits to the law firm but would notably enhance the day to day running of the business.

Working with a Chinese colleague, we sourced fifteen buildings and called landlord agents to check availability. The client identified an interest into two prime Grade A buildings- Plaza 66 and ICC. Unfortunately, both are far beyond their budget (Plaza 66 has an asking rent of RMB14 sqm/day) however I included both for comparison purposes. The market report focused on current demand trends and future expectations. Generally speaking this can be broken down to an analysis of both sides of Shanghai: Puxi and Pudong. As the client's specified areas are all in Puxi, I focused on Puxi. A substantial amount of office space will be released to the Shanghai market in the next two years (1.6 million sqm between 2014-2016) which will place downward pressure on rents. Landlords are aware of this and are keen for tenants to renew just like new buildings are determined to lease space as quickly as possible. My objective is to encourage interest in SOHO Fuxing. The building's mock up floor opens at the end of this month therefore allowing inspections to take place from the beginning of next month.

With the report sent, I now need to wait for the client's feedback and aim to arrange a meeting which would help to get to know the client and build a relationship. Everything in China is based on 关系 (guanxi) ie relationships.

Week 15

This week Savills was approached by a Turkish TMT company looking to rent a total of circa 500 sqm in Shanghai. One unit is intended for office use (300 sqm) and another for laboratory use (200 sqm). The client wants to occupy the lab space from October this year while the office space is needed at a later date, after Chinese New Year. His requests include to be located close to the city centre, for both units to be located in the same building, access to water and drainage options, permission for high noise levels and proximity to transport facilities.

The team decided industrial parks would be the best option for the client and selected specific areas with good transport connections. After drafting an initial list of options, a colleague and I started making calls to inquire about availability, rent and floor plans in these buildings. Following this, we were able to produce an initial options package which includes a location map and all relevant leasing details that we sent back to the client for initial comments.

I learnt that a lot of due-diligence is required when dealing with industrial parks in China as occasionally the land on which they are developed can have a different user class. This grey area only applies to small mainland Chinese companies. In such unique cases, tenants risk the local government appearing at their door step and putting an immediate halt to their activity. I am told applying for a change of use is a long and strenuous procedure and therefore very rarely done.

Otherwise, I was asked to assist this year's Q2 office presentation. This is a presentation created by the research team and used by agents during pitches. Often an important client may request a market report alternatively if Savills are pitching for an agency job, agents will need to integrate a market commentary into their presentations. Many things in Shanghai- and China- change rapidly hence market reports can undergo substantial change over a short period of time. This time we are thinking of downgrading our rental growth from over 6% to circa 4% for the city as a whole due to a greater than expected slowdown in rental growth. Likewise, early termination of prime sky scrapers which inject close to 100,000 sqm of new office space into the market evidently affects our quarterly data, which subsequently demands last minute adjustment. This is China!

Week 12

Lately I have worked on a relocation pitch for a large US insurance firm. The firm currently occupies 2,000 sqm in a one of Shanghai's tallest office towers, the Jin Mao Tower, located the city's financial district Pudong.  

Firstly, the client requested a floor plan of the Jin Mao and I was asked to walk the building (50 floors) so as to verify that the stacking plan saved  on our database is up to date. I dedicated one morning to this however, when I arrived at the building I quickly realised this was not going to be possible. Jin Mao operates a tight security system and reception refused to let me in without a formal invitation from a tenant. As I did not wish to return to the office empty handed, I decided I would take pictures of the tenant board and I left with an Iphone filled with circa 50 photos. This helped me produce a current stacking plan.

We later had to estimate the rent being paid and the space being occupied by each tenant. I produced an initial estimation based on previous information and the latest vacancy list however this was later fine-tuned by  more senior team members.

Secondly, I helped draft a Request for Proposal (RFP) for the client to be sent to different agents acting on the disposal side. The RFP includes all terms and conditions of the lease and has to integrate any requests specified by the client, for example over time air conditioning, as well as specifics we believe might benefit the client , for example a capped three year option to renew. The RFP is used as a negotiation ground and is sent between agents on both sides of the transaction. The first RFP was prepared for a building Savills are retained leasing agents, Oriental Financial Centre. After proof checks with the team head, the template was sent to the client along with a detailed email helping the client understand the technical details.

This process will be repeated for a dozen other buildings in the city in the hope to secure the best offer for the client.

Week 8

This week I have jumped around various projects. I was first asked to correct a Lease Agreement which was initially translated by a local law firm and the client, a foreign company, had trouble understanding the terms. As a result they asked Savills to assist in translating the contract.

Lease Agreements in China are primarily issued in Mandarin yet an English version can also be produced if requested by a tenant. In case of a legal dispute, the Chinese version will prevail and therefore is regarded as more important.

Secondly, we received a request from a Savills UK office to meet a British client who is looking to relocate their space and would like a briefing on the local office market in Shanghai. The meeting is scheduled for the end of the week before which we need to find out where the company is located, whether they are still in occupation and provide a comment on the building.

One major difference between the UK and China is that property related information is not readily available. In order for Savills to provide advice on a specific office, agents' starting point is often 'building walking'. 'Building walking', as the name specifies, entails visiting each floor (or as many as possible) of a building in order to build a personal file on the building. In this case, it turned out our client was no longer in occupation of the premises, the building had been recently sold and was undergoing major refurbishment.

Lastly, I had the opportunity to accompany Savills' Head of Capital Markets for Asia Pacific and the Shanghai Head of Research to various investor meetings who are looking to invest on shore in the immediate future.

Week 3

I met with the French Cultural Advisor and Secretary General who arrived in Shanghai on Wednesday 22nd May with their back up team from Beijing. The French Consulate has recently bought office space in Shanghai, Savills acted, and the cultural arm of the Embassy is looking to lease space to open a French Institute in the city.

The building we showed the clients around is owned by one of the biggest developers in China, SOHO. This is the same building where the Consulate bought office space. How can one purchase office space? In China, there is a system called Strata which was actually invented by SOHO. This allows a landlord of a building to cut up and divide space and for clients to purchase office units. This is mostly favoured by local companies and is more prominent in none core areas of Shanghai. This prompted Zhang Xin- head of SOHO to jokingly point out to French President Francois Hollande during his latest trip to the Middle Kingdom " I am your landlord".

The building is 98% full. The landlord wants to fill the remaining vacant space as quickly as possible yet as the client is the French government, the agreement procedure is far more extended than that of a small company. My current role is to persuade the landlord's agents that the client is serious about acquiring that space and it should therefore be kept off the market. We have presented deadlines - the latest being 24th June- for the deal to be completed.

The deal is also subject to the Consulate's architects approval and then a final signature in Paris. If successful this would represent Savills' third involvement with this building, the initial involvement being the 'freehold' sale of the 中山广场building to SOHO.