BOMA Canada reps see the good, the bad and the ugly in China

A group of eight BOMA Canada members had “a terrific, eye-opening, frankly fascinating” eight-day, three-city tour organized by the fledgling BOMA China organization.
The delegation was promised a “comprehensive overview” of the Chinese real estate market and insider building tours in Beijing, Tianjin and Shanghai, all under the auspices of the Building Owners and Managers Association of China (BOMA China) in late March.
Count BOMA Canada President and Chief Executive Officer Benjamin Shinewald as impressed. “It was the first time that we had done this type of thing and the first time that I am aware of that a commercial real estate mission has gone to China.”
Shinewald said the contingent, which included members from Ontario, Alberta and British Columbia, were blown away from the beginning after being taken to Shanghai’s financial district. “
We went to have lunch with Cushman Wakefield Shanghai and they hosted us on the 101st floor of the second-tallest building in the world and we had a view of a crane outside that was putting up a tower across the street that is, like 120 metres higher than the one that we were in,” he said. “Seeing the scale in Shanghai was remarkable and they have some spectacular properties in that area.”

Left: The Shanghai World Financial Centre and the (under construction) Shanghai Tower which will stand 632 metres high. Right: View from the 101st floor of the Shanghai World Financial Centre – the second tallest building in the world at 492 metres.
Planes and high-speed trains
The BOMA bunch then flew to the “second-tier” city of Tianjin, China’s sixth-largest (population about 13 million). “That is a place where the Chinese are building, more or less from scratch, a megalopolis,” said Shinewald. “Hundreds upon hundreds of skyscrapers, residential and commercial both going up.”
Cranes were a common sight on the trip, something like 37.5% of the world’s under-construction office towers are in China, the BOMA guests were told.
With more investment capital than they can easily spend, the Chinese are building infrastructure on a scale and at a pace that has never been seen before.
Even the scale model of the future city was gigantic. “They had a huge hall built, just to accommodate the model. It was just unbelievable.”
The next day the group took a bullet train to Beijing for industry meetings, economic analysis, tourism and building tours including the Chinese headquarters for Bayer, the million-square-foot Jiaming Centre, which is managed by Canadian industry veteran Gabby Franco.

BOMA Canada Group on tour in China organized by BOMA China
The not-so good
The next day in the Chinese capital, the BOMA group continued its tour and learned it is not all glitter and soaring heights in the world’s second-largest economy. “We saw some more typical assets and saw very, very impressive growth but also corresponding challenges,” said the BOMA Canada CEO. “Very clear that the Chinese properties are going to need some very serious TLC as they grow despite the impressive veneer or facade.”
The real and significant weakness shown by China’s real estate industry, and the very real opportunity for Canada’s, is that its developers are skilled at erecting commercial towers and terrible at maintaining them once they are up and running.
“One building that we saw was only six years old and I would even have a hard time comparing it with a 40-year-old building back here. The 40-year-old one (in Canada) would be in much better condition,” said Peter MacHardy, Vice-President of National Commercial Property Management with GWL Realty Advisors and BOMA Canada's Chairman.
While the Chinese are justifiably proud of the towering proof of their rapid industrialization, basic maintenance is not part of the program. “What happens is they build and almost in some respects after kind of 15 years the buildings are worn because they are not maintained enough so they just knock them down and build a new one.”
MacHardy sees an opportunity for North American commercial real estate companies to come to China and maintain and operate buildings but it will not be easy. “There is quite a rigorous and robust process that you would have to go through,” said the Calgary-based MacHardy.
The list of services Canadian firms could provide is long. “I would say it is almost everything. Building operators, training programs, environmental sustainability, health and safety, customer service, security, policies, procedures, guidelines.”

Model of plans for Tianjin – almost everything you see in the model will be built from scratch.
Maintenance issue is systemic
First-world buildings in China are receiving third-world maintenance in part because building maintenance and operations staff simply do not have the experience and expertise that is common in North America.
As well, the developers who construct residential towers in a “build and sell it” model are the same ones who put up commercial buildings, a situation which has created a “build it and forget it” mindset even though they may retain ownership of the building.
MacHardy noted that tenants enjoy few of the amenities that are common in commercial buildings in North America. “The tenant comes in and they do their own improvements. They get base building: they get a raised floor, ceiling tiles and air conditioning, but you do 100% of your own build-out and you pay your own electricity, so you pay for what you use,” he said.
“And when the lease term is up and you move out, you restore it identical back to the base building.”
China is also unique in that the government retains ownership of the land, meaning office towers hold 40-year leases and the issue of what happens when those leases expire remains a real question.
China knows of its problems
Dominic Lau, BOMA China’s Vice-Chair of Association Services who directed much of the March tour, said there is widespread acknowledgment that the real estate industry has a long way to go when it comes to critical issues such as building maintenance.
“It is a well-known fact, even the government officials admit that,” said Lau, who has spent much of his life in Canada and worked until recently in Calgary’s real estate industry. “You can’t hide it, a building that is a year or two years old looks like a 10-year-old building. They deteriorate very quickly.”
That’s where BOMA China, established just a few years ago, comes in. “That is what BOMA China’s mission is, to advocate” the development of building maintenance and operations standards that are taken for granted in North America and Europe.
“We have got to advocate the reasons that they need to maintain the buildings,” he said. “They don’t understand the concept of maintaining buildings. Their thinking is that once they build the building it will print cash and leave it alone. What else do you need to do?”
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