Booming Tech Sector Redraws the Map

Booming Tech Sector Redraws the Map

PAUL MOZUR in Beijing and ESTHER FUNG in Shanghai

Jan. 7, 2014 11:01 p.m. ET

China’s high-tech companies have made their mark on the nation’s economy. Now, with growing cash and investment at their disposal, they are beginning to have an impact on its skylines.Many of China’s technology giants got their starts in cheap, half-empty office space often near the country’s tech malls—windowless, multilevel shopping areas that sell everything from pirated phones to mother boards.

On the surface, not much has changed. The landscape of Beijing’s northwestern Zhongguancun district, the center for the decadelong boom in Chinese Internet companies, still is dotted with many of those malls alongside fast-food restaurants and a mix of old and new office buildings.

But rents there are rising and vacancies are below Beijing’s city average. The result, real-estate consultants say, is that flush Chinese companies looking to build new headquarters are moving increasingly far afield, north and south of the core Zhongguancun area.

Sina Corp. SINA +3.50% , which currently runs its primary operations out of a building in central Zhongguancun, plans to build a new headquarters that could cost as much as $180 million in a tech park in Shangdi, more than seven kilometers (4.3 miles) north of central Zhongguancun, according to filings and the website of the technology park where it will be built. Search provider Baidu Inc. BIDU +1.24% plans to opens offices in the same park.

The same phenomenon is beginning to take place in other cities in China, where new tech districts are sprouting up around universities, pushing up rents as developers and tech companies spend on stylish new homes.

In the southern city of Shenzhen, social-media and gaming giant Tencent Holdings Ltd.TCEHY +0.33%

is building a new 270,000 square-meter (886,000 square-foot) office space. With two towers connected by two large skybridges, the office is designed to be a “vertical campus,” according to NBBJ, the architecture firm that designed the complex.

“Tencent has global aspirations…so they were interested in something very unique,” said Scott Wyatt, a managing partner at NBBJ. “They wanted something unlike anyone had seen.”

Tencent declined to comment.

The new buildings, the tallest of which will stand 250 meters, are scheduled to be completed in 2016 and feature generous amounts of public space designed to foster communication between employees. They will sit adjacent to Shenzhen University.

The cost of doing business in Zhongguancun has soared. Five years ago, offices there rented for 167 yuan per square meter a month, according to real-estate research firm Colliers International. They now rent for 241 yuan per square meter a month, a 44% increase. By comparison, overall office space in Beijing rose 64% over the same period, Colliers said.

Sale prices of office units in Zhongguancun are catching up to Beijing. Five years ago, Zhongguancun offices sold for 16,800 yuan per square meter, only about two-thirds of the then-city average of about 27,100 yuan per square meter, said Colliers. Now offices are sold at 43,400 yuan per square meter, or three-quarters of the 57,600 yuan-per-square-meter average in the city.

Vacancies in Zhongguancun are below 2% for office space, compared with the 3% average in Beijing, according to real-estate investment company Jones Lang LaSalle.

As a result, many of Beijing’s largest tech companies are looking further north, where land prices and rents are cheaper.

Another budding tech hub is Shanghai, where property developer Shui On Land0272.HK +1.74% in 2005 started work on a large-scale, commercial and residential project in Yangpu district specifically for technology companies and startups.

Today the development, called Knowledge and Innovation Center, is home to more than 400 startups, as well as larger firms such Oracle Corp. ORCL +1.01% and International Business Machines Corp. IBM +1.99% KIC, which covers a site area of 800,000 square meters, includes a sports complex and is located near top schools such as Fudan University and Tongji University, making recruitment and collaboration with academia easier.

“One stretch called Daxue Lu, or University Avenue, looks similar to Westwood village near UCLA,” said Yu Sern Hong, China regional manager at Hollywood-based architecture firm 5+design, referring to the University of California, Los Angeles. The architecture firm doesn’t have a role in the project. “It definitely has a vibe that appeals to young professionals.”

Shui On Land has a tiered office-leasing structure in KIC—it charges startups as little as 700 yuan a month for a table in shared space, while charging bigger firms four yuan per square meter a day ($22 per square foot a year). In contrast, offices in Shanghai’s Lujiazui Financial District rent for as much as about 16 yuan per square meter a day.

Yan Yan, a 30-year-old entrepreneur who started a website for amateur dancers, moved into KIC in March. He said he pays around 5,600 yuan in rent a month for space for eight tables for his firm of eight people. “I don’t have to bother about utilities, Internet or hire a receptionist. Just focus on my work,” he said.

KIC is a joint venture of the Hong Kong-listed property developer and the local Yangpu district government, which has been supporting the development of a technology corridor in its district in recent years.

Nearby, other local and foreign developers also have poured money into the construction of shopping malls, residential and office projects, creating buzz in the area that was once a military airfield. Just minutes away from KIC, New York-based Tishman Speyer is building The Springs, a large mixed-use project just minutes away that will be home to Nike Inc.’s China headquarters in 2014, according to Nike and Tishman Speyer.