Summary of Key Points
China's industrial real estate sector is facing a stark contrast: on one hand, there are 6.2 billion square meters of unused space (with an average national vacancy rate of over 50%, and some third-tier parks having vacancy rates as high as 75%), resulting in total losses of 4.076 billion yuan for listed park enterprises; on the other hand, high-quality customized spaces (such as the Shanghai Lingang Integrated Circuit Park) have annual rental rates exceeding 98%. This contradiction stems from issues accumulated over 40 years of development—starting with a reckless growth phase focused on acquiring and selling land, to current problems such as a mismatch between supply and demand (traditional standardized factories failing to meet the needs of new productivity), single-source profitability, and misallocation of funds. The key to breaking this cycle lies in shifting from a real estate mindset to an "industrial partner" approach: balancing heavy and light assets, revitalizing existing properties, innovating with REITs (Real Estate Investment Trusts), enhancing operational capabilities (providing deep support to enterprises), and implementing digital and green transformations. The industry is about to enter a golden decade of high-quality development, with core trends including the IPization of industries, capitalization, and specialized division of labor.
Current Situation: One Side Has Empty Spaces, While the Other Faces High Demand for Quality Facilities
The contradiction in industrial real estate is evident:
- Severe vacancy: More than 80,000 parks nationwide are partially or completely vacant. Twenty-four listed park enterprises suffered losses of over 4 billion yuan last year, with industrial factory rents falling by 16% and R&D office rents dropping by more than 30%. For example, a comprehensive park in a third-tier city in the central or western region is 75% empty due to a lack of clear industrial direction and inadequate supporting facilities.
- Scarcity of Quality Spaces: Parks like the Shanghai Lingang Integrated Circuit Park, designed for high-end industries, have annual rental rates above 98%, making it difficult for companies to secure space.
Why is this? The fundamental issue is that outdated facilities cannot meet the needs of new industries such as digital economy and biomedicine, which require customized (e.g., clean rooms for biotech) and intelligent spaces. Most of the existing factories are either too old or not suitable for these purposes.
Four Decades of Development: From "Land Acquisition for Profit" to "Profit Through Operation"
The development of industrial real estate over the past 40 years has followed China's economic transformation, going through three phases:
1. 1984-2015: Reckless Growth, Focusing on Land Acquisition: Parks were established across the country with a model where the government provided land, enterprises built facilities, and then sold the land for profit. For instance, Huaxia Happiness became the industry leader by developing the Gu'an New City near Beijing, attracting 1,200 investors. However, this phase emphasized development over operation, with little concern for the viability of the industries housed within.
2. 2016-2025: Competition on Existing Assets, Operation Takes Center Stage: With stricter real estate regulations and declining residential property profits, there was an oversupply of parks. This led to a shift towards operational efficiency; for example, the Suzhou Industrial Park became the nation's best in this area for several years through market-oriented management, while Huaxia Happiness faced a debt crisis due to high leverage and losses of 98% in the first three quarters of 2025.
3. 2025-Present: Industry IP + Capital Drive: New productivity has become crucial, and parks must rely on specialized industry IPs for success. For example, the Lingang Group focuses on integrated circuits and biomedicine, with park output exceeding 500 billion yuan in 2024, establishing it as a hub for high-end industries. The current landscape features a combination of state-owned and private enterprises.
Root Causes of the Dilemma
The problem is not a lack of demand but rather the failure of outdated models to adapt:
- Overemphasis on Real Estate: Many parks are still built using residential construction methods, resulting in standardized facilities that do not meet enterprise needs. For example, a general-purpose park in a prefecture-level city in the Yangtze River Delta has 60% of its space vacant despite being built for high-end manufacturing.
- Unclear Valuation: The value of industrial parks is difficult to quantify. For instance, a private park that has nurtured ten high-tech companies can only raise funds based on the property value, which often falls short of construction costs, deterring investment.
- Single Source of Profit: Most parks rely on rent and maintenance fees, with value-added services (such as training and technical support) accounting for less than 5%. A drop in rental rates leads to immediate losses.
- Misallocation of Funds: Park investments require a long return period (over 10 years), but enterprises often use short-term loans, leading to financial difficulties if they cannot repay.
- Fierce Competition for Popular Industries: Parks compete for attractive industries (e.g., new energy), driving down rents and reducing profits.
Solutions: Moving from "Secondary Landlords" to "Industrial Partners"
To overcome these challenges, a fundamental shift in approach is needed:
- Balancing Heavy and Light Assets: Avoid focusing solely on heavy assets (land acquisition and construction) or light assets (operation). Procter & Gamble's model involves selling developed parks to funds and generating revenue through operations; in 2024, its China assets reached $79 billion with an 87% rental rate. Huaxia Happiness adjusted its strategy in Deqing, shifting from heavy assets to industrial consulting and leasing, increasing ROE (Return on Equity) from 8% to 25%.
- Revitalizing Existing Properties: Transforming old parks is a strategic opportunity. For example, the Dongguan "Industrial Upgrading" initiative transformed inefficient land into high-quality facilities with 80% occupancy rates before delivery.
- REITs for Capital Circulation: REITs package park assets as funds for investors, allowing operators to reinvest in new projects. For instance, CICC Procter & Gamble REIT distributed 4.5% dividends last year and expanded to cover 18 cities, creating a sustainable development cycle.
- Enhanced Operations: Act as true industrial partners by supporting enterprise growth beyond just collecting rent. For example, the Wanyang Park's "One Park, One Chain" model attracted 50 upstream and downstream companies and built shared labs and testing facilities, increasing annual output by 40%.
- Digital and Green Transformations: Adapt to new productivity demands with green building solutions. For instance, Rongtong Real Estate transformed a Jinan park into a more energy-efficient one, increasing rents by 12% and occupancy rates from 70% to 95%.
Future Outlook: A Golden Decade of High-Quality Development
The industry is entering a golden decade driven by long-term strategies:
- Industry IPization: Parks will compete on their unique value propositions, such as specialized capabilities in integrated circuits or biomedicine.
- Accelerated Capitalization and Differentiation: REITs will channel capital towards companies with operational expertise, leading to a concentration of the best players.
- Specialized Division of Labor: Development, operation, and fund management will become more specialized, eliminating the traditional "one-size-fits-all" approach.
- State-Owned Enterprises Lead, Private Enterprises Supplement: State-owned enterprises will develop core assets, while private firms will complement them in logistics and innovation services.
- Integration of Industry and City: Parks will integrate production with living and ecological functions. Transforming old parks will be a major opportunity, with models like Dongguan's "Industrial Upgrading" and Shanghai's land revitalization becoming national trends.
Conclusion
Industrial real estate is about serving industries, not just real estate investments. The era of profiting from land appreciation is over; now, the focus is on supporting enterprise growth. Empty parks are not a burden but opportunities for industrial transformation. By abandoning a traditional real estate mindset and adopting an industrial partner approach, the industry can embrace a new era of success.