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News Release

Qingdao

Jones Lang LaSalle Forecasts Cautious Optimism in 3Q09

Qingdao Retail Vacancies Increase, While Office Demand Slightly Rebounds


In the third quarter of this year, Jones Lang LaSalle saw the Qingdao office market showing a steady improvement over the previous quarter. Spurred by an increase in demand from domestic firms, more foreign companies also started looking for space to expand their operations in more cost effective buildings. Five Grade B office buildings totaling 181,000 sqm will come to the market by the end of 2009 – a relatively large supply for Qingdao.  While downward pressure on rentals has persisted, the rate of rental drops has also eased. However, with the large amount of vacant space in the market, and impending new supplies expected in the next 12 to 18 months, landlords in recently completed buildings are offering attractive leasing terms in an effort to lure tenants.

As global wealth continues to decline, many international retail brands have put their global expansion plans on hold. A lack of leasing commitments meant that many developers delayed their development opening dates, with some pushing back to the end of 2009. Meanwhile, four new projects totaling 205,000 sqm, scheduled for completion at the end of the year, will push up the overall retail vacancy rate to higher than normal levels.

As for the local high-end residential market, it began to show more activity this quarter with transaction volumes rebounding in the sales market. The sales rate of high-end residential properties reached 33%, while the average sales prices of both luxury and high-end apartments in Qingdao increased last quarter.
 
Office

Pressures continue despite slightly rebounding demand. Qingdao office market saw no new supply in 3Q09, implying that the total stock of Grade A and Grade B offices remains at 384,000 sqm and 1,604,141 sqm respectively. The only new Grade A building of the year, Shangri-La Centre, was completed in 2Q09 with an office GFA of 32,000 sqm.

Due to construction delays, Porsche Centre, SEAO International and Qingdao International Development Center delayed their completion dates to 4Q09. Influenced by the global financial crisis, many MNCs also opted to delay expansion plans or new setups in Qingdao last quarter. The vacancy rate for Grade A office buildings reached 70.1% in 3Q09 – a higher-than-expected rate.  It is highlighted by the Shangri-La Centre, which officially opened in late-2Q09, but remains relatively vacant.  The majority of transactions recently taking place in Grade A buildings, conveniently located in the CBD area, offer cheaper rental rates, while the vacancy rate for Grade B buildings slightly increased in 3Q09 from 18% to 18.4%.

Due to weakened demand, average  rentals for Grade A office space continued to decline 4.8% q-o-q to RMB 118 per sqm per month in 3Q09.  In contrast, rentals for Grade B office space in both the Shinan and Laoshan district saw a slight increase of 0.68% to RMB 74.1 per sqm per month.

A large supply of Grade B office buildings totaling 181,000 sqm will come online in the second half of 2009. Two of these developments are located in Shinan district, while the others are located in Laoshan. Laoshan, an emerging business district; will take up to five years to mature to the level of Shinan.

Retail

Mid-range brands expand aggressively despite a slow leasing market. Macau’s Powerlong Group has invested more than RMB 2 billion to develop Powerlong City Plaza in the Chengyang district. The whole project consists of four phases: Phase I, opened in 1Q09, is a supermarket from Korean discount chain Lotte Mart  (GFA 30,000 sqm),  while Phase II, opened last September, is approximately 100,000 sqm consisting of store outlets, branded shops and an indoor theme park. The indoor theme park, approximately 50,000-sqm, is said to be the biggest of its kind in China.

Prior to the Mid-Autumn Festival and National Holiday, most shopping centers ramped up their promotion efforts via the distribution of coupons, discounts, and free samples. The average vacancy rate of the high-end and luxury retail market remained low at around 8%. The average rental of prime retail properties in Qingdao went up slightly, seeing a 1.6% q-o-q increase to RMB 505 per sqm in 3Q09.

Four more new projects will be completed by the end of 2009. An influx of 205,000 sqm of retail space in the market will drive up the overall vacancy rates to never-before-seen levels in Qingdao. The local economy, which is heavily reliant on exports and shipping, has had a profound effect on local residents' buying power and willingness to spend, especially on luxury goods. Fortunately, most of the supply coming online is catered to the  mid-end consumer.

Residential

Sales market demand warming up. After a long period without new launches, particularly in the luxury segment, the residential market has picked up this quarter, with 628 luxury units launched for presale in 3Q09. In terms of completed developments, Golden Cost, a luxury project, and Ruina Zuiyu, a high-end development, were both completed and delivered to the market on time. In terms of sales, transaction volumes rebounded as the sales rate of high-end residential properties reached 33% in 3Q09.

In the third quarter of this year, the average sales price of luxury apartments in Qingdao increased 2.43% q-o-q, reaching RMB 18,354 per sqm - for example, the selling price of Sea Palace was priced at RMB 25,000 per sqm, this is higher than the average market rate. As for the high-end residential market, prices increased by 2.05% q-o-q to RMB 11,915 per sqm.