IC industry flourishes and drives leasing demand in China

China’s integrated circuit industry is growing rapidly, with Shanghai playing a pivotal role throughout the industry chain.

August 11, 2023

After years of dedicated development, the Chinese integrated circuit (IC) industry witnessed notable expansion and has become the world’s largest single market for semiconductors, with nearly 30% of the global share of sales. According to the China Semiconductor Industry Association (CSIA), market sales amounted to a record CNY 1,100 billion (USD 163 billion) in 2022. Notably, Shanghai accounts for over 25% share of the nationwide market, leading the development of the Chinese semiconductor industry.

Figure 1: IC industry chain model

Source: JLL Research based on public releases

Diversified application scenarios bolster steady demand growth in the mid and upstream of the IC industry chain

The IC industry chain shows strong synergy: the upstream is the basic segment, including electronic design automation (EDA) tools, core wafer fabrication equipment and raw material production; the midstream stands as the major parts, entailing IC design procedure, manufacturing to packaging and testing; and the downstream represents a broad range of application scenarios such as automotive electronics, AI, consumer electronics, medical devices etc.

Automotive Electronics: The demand for chips in both conventional and electric cars has been persistently increasing amid the rising sales and penetration rate of new energy vehicles (NEVs). The market size is expected to reach USD 23 billion by 2025.

Figure 2: China NEVs sales in units and penetration rate

Source: China Association of Automobile Manufacturers (CAAM), JLL Research

AI: AI chips will embrace a broadened marketplace as 5G and cloud computing become popular in the near future. The size of China’s core AI market is estimated to achieve CNY 400 billion (USD 59 billion) by 2025 with a CAGR of 27.4%.

Figure 3: 2019-2025F China’s core AI industry market size

Source: Zhiyan Consulting Group, JLL Research

IC showed leasing demand in business parks and traditional Grade A office

Take the Shanghai Business Park market, for instance. TMT companies accounted for 41% of leasing demand in business parks in 2022. About half of these TMT tenants are hard technology companies related to chips. Also, the proportion of such tenants has rapidly increased from 9% in 2020 to 20% in 2022. Notably, NEVs and the life sciences industry, with strong demand for chips, occupy 16% and 22% of the total leased area, respectively.

Figure 4: Shanghai IC industry leasing heatmap (2021-2Q23)

Source: JLL Research

Shanghai business parks accommodate high leasing demand from IC companies, most having a high preference for projects in Zhangjiang and Caohejing. Zhangjiang, where Shanghai’s official IC R&D centre and design centre is located, aims to create a world-class business park as an IC industry cluster. On the other hand, Caohejing, having the advantage of aggregating popular emerging companies, currently downstream of the IC industry, including automotive electronics, AI, gaming, etc., outperformed the remaining submarkets. The two submarkets possess the advantage of sufficient talent, flexible policy and convenient interaction with downstream companies to become their preferred location.

Meanwhile, the huge market demand in Shanghai has attracted many companies to set up branch office projects close to relevant factories and R&D labs to provide better services for the completing market loop in the entire Yangtze River Delta.

The clustering effect and development level of Shanghai's IC industry will be further enhanced, continuously attracting leading global companies and raising more and more local companies that are expected to be the benchmark in the market. These companies will definitely need more working space as well as R&D space and will become an important part of the demand for office and business parks in Shanghai.