Big Chinese firms take to skyline

Seeing profits, companies jump into commercial real-estate sector; hopping onto environmental bandwagon
By JONATHAN CHENG
GUANGZHOU, China—What is being billed as the world's most energy-efficient skyscraper is being built here in the center of one of China's smoggiest cities, with four big wind turbines, solar panels and a dual-layer glass skin that traps sunlight and pipes it into the building's heating system.
The unlikely champion behind this green urban project: state-owned China National Tobacco Co.
"We are a tobacco company, but the management is also thinking about the future and reducing emissions. This building can really serve as a model for future development," the project's chief engineer, Hu Baiju, said during a recent interview between puffs of a cigarette.
This unusual marriage of interests reflects two trends. China hopes to leapfrog the U.S. by taking the lead in developing new green technologies that have long-term growth potential. At the same time, state-owned businesses in industries as disparate as insurance and tobacco have become a force in China's commercial real-estate sector, putting up the cash to develop some of the most eye-catching skyscrapers in the world.
These large corporations are drawn to the projects by potentially lucrative returns and are helped by strong connections and easy access to state bank lending. While these companies typically occupy some of the space they build, they often put much of it on the market to lease to others. China National Tobacco plans to lease most of the 71 floors in its new project.
Ping An Insurance (Group) Co. of China already has committed to investing about 25 billion yuan ($3.66 billion) in Chinese property over the next three years through a trust. It now is working on what will be one of China's tallest buildings, in the city of Shenzhen, financing the multibillion-yuan skyscraper entirely with its own capital.
China's state-owned enterprises also have been shaking up property prices, both at record-breaking government-land auctions and on the secondary office market. Last autumn, Agricultural Bank of China paid about US$550 million for a top-grade Shanghai office tower, according to brokers.
"Before 2009, there were relatively few state-owned enterprises involved in land sales and property markets; most concentrated on their own businesses," said Hing-yin Lee, a Shanghai property broker for Colliers International. Now, he said, "they see that easy profits can be made."
Mark Latham, Shanghai-based head of office services for CB Richard Ellis in China, said state-owned enterprises are big employers that are expanding quickly in China, and see constructing and buying landmark buildings as a way to put their "badge" on a high-profile skyline.
"[State-owned enterprises] have the opportunity to acquire sites in prime locations and have the cash or access to cash to be able to develop buildings tailored and customized according to their specific requirements," Mr. Latham said.
Office-vacancy levels are around 20% in Beijing and 16% in Shanghai. Those are high rates by U.S. and European standards, but the new space is expected to be absorbed quickly thanks to the strong growth of the Chinese economy.
Also, much of the vacant space is second rate, so demand for the newly built prime space may be strong.
State-owned enterprises also are keen to show that they are in step with the priorities of national and regional officials, who have made it clear that green companies and those constructing sustainable buildings are going to enjoy more official support.
In the case of the Pearl River Tower, as China National Tobacco's tower is known, the company's management decided to make the green plunge at the encouragement of Guangzhou's municipal leaders, who set aside a large swath of prime farmland for a new business district and encouraged state-owned corporations to participate.
China National Tobacco decided it would build a landmark environmental building, and four years ago, through a subsidiary company, hired Chicago architects Skidmore, Owings and Merrill LLP to fashion the world's first "zero-energy" skyscraper, generating all the energy it needed to operate itself.
Skidmore Owings embedded the tower with triple-glazed facades and solar panels, and chilled radiant ceilings. Its showpiece: four power-generating vertical-axis wind turbines.
"A lot of clients say they want to build something very energy-efficient, but in this case, they really followed through with that goal," said Ame Engelhart, a Hong Kong-based Skidmore associate involved with the project.
The project is expected to be completed in about a year.
Ms. Engelhart said China National Tobacco is one of the few companies willing to put its money where its mouth is on environmental issues. While the building won't be smoke-free, it will restrict smoking to designated areas, a far cry from China's typically hazy workplaces.
Ms. Engelhart said a building like the Pearl River Tower costs about 10% to 15% more than without the energy-efficient features, but said the projected cost savings could mean the building breaks even within five years.
Some of Skidmore's ideas, including "microturbines" that would sell extra capacity back into Guangzhou's power grid, were barred by municipal regulations. But Skidmore still maintains that the 2.2-million-square-foot tower will consume about 8.76 billion pounds of carbon dioxide over its life cycle, 58% less than a nonenhanced building of the same scale.
The municipal government of Guangzhou's construction arm, Guangzhou City Construction & Development Co., also is getting in the act, having hired Wilkinson Eyre Architects of London to design a 103-story skyscraper not far from China National Tobacco's tower.
The 750 million-yuan building, set to open in October as the Guangzhou International Finance Center, features high-efficiency chilled water systems and heat recovery design, an air-conditioning system that recycles condensed water, built-in carbon dioxide sensors and double-glazed windows.