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Tianjin’s commercial real estate market is finally seeing an upturn in demand, according to research reports by Jones Lang LaSalle. Since 2Q09, Tianjin’s office market has been gradually recovering from after-effects of the global recession. “In 2008, we ended the year with concerns about how much the market would continue to suffer,” noted Michael Hart, Managing Director at Jones Lang LaSalle Tianjin. “However, as we wrap up 2009, we are already feeling the positive impacts of a recovering economy.” Various international retailers resumed their Tianjin expansions after project delays in the first half of last year. At the same time, the city’s high-end residential prices and transaction volumes soared, while domestic consumption and construction also boosted demand for real estate in the industrial sector.
Office - Business recovery observed in various industries
As tenants became positive about the local market outlook in the latter half of 2009, some took advantage of current market conditions to lease more space without increasing budgets. Throughout 2009, the vast majority of office take up was by domestics firms. Evidenced by limited leasing transactions in Grade A office buildings, international tenants, who usually pay higher rentals for premium space, were not as active in Tianjin.
Since 2007, multinational companies (MNCs) in the local financial industry have been an important driver of office demand. This demand, however, remained relatively quiet in 2009, while domestic firms, on the other hand, stepped up their leasing of office space. Boosted by strong domestic consumption, manufacturing companies – the traditional pillars of Tianjin’s real estate market - continued to provide some stability to the office sector last year. As the city experienced robust levels of construction in 2009, it is worth noting that specialized real estate companies have been a key driver of the office market. Two of the largest leasing transactions in 4Q09 were: Visto, an American high-tech company who leased 1,500 sqm in Global Center, and Tifen Business Park Investment Co. who relocated to the newly completed Tianjin City Tower (leasing over 2,000 sqm).
Tianjin’s landmark office tower – the Tianjin World Financial Center (TWFC), is due to ‘top out’ on 14th January. Given its large scale, 205,000 sqm, the building is expected to reshape the future of Tianjin’s office market. TWFC’s largest floor plate will reach more than 3,000 sqm to accommodate for large companies. Average office rental prices reached RMB 3.5 per sqm per day, slightly down by 0.6% q-o-q, while average vacancy rates were down 2.0% q-o-q, reaching 18.0%. “In the next two years, we expect Tianjin’s mainstream industries to recover further and drive market demand for office space,” noted Lv Weiran, Head of Markets at Jones Lang LaSalle Tianjin.
Retail - International retailers resume expansion plans
High-end projects in Tianjin are enjoying good sales income. The sales turnover of Friendship Store and Isetan were ranked as top one and two among all the major retail projects in 2009. After two and a half years’ incubation, Hisense Plaza secured its position among high-end shoppers and witnessed steady sales growth. Thanks to rising sales, rentals, which are tied to sales turnover, grew steadily in 4Q09.
After suspending operations in the first half of 2009, various international retailers have resumed expansion plans in Tianjin. Watsons, in particular, opened five additional outlets, while its closest competitor, Mannings, opened two new stores on Nanjing Road. Tianjin’s first Coach store opened in Isetan, leasing a space of 100 sqm, while Hisense Plaza opened the first Y3 outlet. With no new completions this quarter, average vacancy rates of prime retail projects decreased to 6.7% in 4Q09, down by 1.3% q-o-q.
Several premium large-scale shopping centers, currently under construction and due to open in next three years, have started preleasing. These projects will assure the presence of new international anchor tenants and other well-known retailers in Tianjin. This is predicted to ease consumers’ complaints of the lack of recreational facilities, and similar brand-mixes, in many existing retail projects.
High-end Residential - Price and transaction volume surpassed 2008 figures
After its pre-sale launch in 3Q09, Yanlord Riverside Plaza introduced another 176 fit-out units in 4Q09 at RMB 18,000/sqm. Several projects, which were postponed during the economic downturn, are now expected to enter the Tianjin market after rapid recovery in transaction volume and price. We anticipate that strong local demand will mean a quick sales turnover for these units.
A number of projects which launched presales in the past eighteen months raised their prices by RMB 2,000/sqm. Sales prices rose to RMB 14,566 per sqm in 4Q09, up 9.0% q-o-q. This price already surpassed the peak in 2008 by 2.0%. Over 1,100 high-end residential units were sold in 4Q09. R&F City Phase 3, Yanlord Riverside Plaza in Old Town and Golden Class along Nanjing Road sold the most units among all high-end residential projects in the city. Transaction volumes in 4Q continued to be strong and, coupled with strong sales in Q1-Q3, overall figures for high end properties were at 32% higher than the previous year. It is clear that market sentiment for Tianjin’s high end residential market remains positive.
Industrial - Domestic consumption and construction boost demand
No new warehouses were completed last quarter, thus logistics stock remained unchanged. 3PL business witnessed an obvious pick-up and while demand for non-bonded space remained robust, bonded warehouses were challenged by oversupply. However, rising occupancy rates were also seen in Tianjin Port Free Trade Zone (the largest bonded warehouse stock in Tianjin).
Average rental rates slightly decreased by 1.5% q-o-q, reaching RMB 0.8/sqm/say. While non-bonded rentals remained stable and bonded warehouses bottomed out in 4Q09, the decline in the industrial sector last year was mainly due to underperforming projects in Dongjiang Port.
Domestic consumption and construction continue to boost demand in this sector, while tenants hold an optimistic outlook for future expansions. In 4Q09, vacancy rates of primary warehouses slightly decreased to 37.0%, down 2.0% compared to the previous quarter. Mercedes-Benz leased 13,000 sqm in AMB (Tianjin) International Logistics Center, located in Tianjin Port Free Trade Zone. Kuehne + Nagel rented 11,000 sqm in Blogis (Tianjin) Logistics Center, situated in Tanggu Marine Hi-Tech Development Area.
The most prominent investment deal to take place in Tianjin was between Forte Group and Hainan Airlines. In late 2009, Forte Group completed the sale of their 75% share in the Tianjin Centre to Hainan Airlines Group. Forte reportedly sold their share for RMB 2 billion, after having invested RMB 500 million in 2005, in what was then a distressed asset. The project is now home to an office building and high-end residential apartments with a new shopping center and the Raffles Hotel both scheduled to open in 2010.
Across China, rents in the office sector fell at a slower rate as leasing demand in Tier 1 cities was robust, driven largely by domestic companies and purchases by owner-occupiers. Like Tianjin, rents in Tier 2 cities also seemed to bottom, although net take up was slow in Grade A buildings in spite of demand from domestic companies. The retail property market saw rents rise slightly across Tier 1 and 2 cities, with strong demand from international brands keeping vacancy rates low. Capital Values were up strongly in the luxury residential market in most Tier 1 cities. Transaction volumes slowed from their peak levels earlier in 2009, but most cities saw increased secondary market activity as many owners tried to take profits before tighter regulations came into effect in 2010. Tier 2 cities had similar performances with transaction volumes slowing but prices rising strongly.
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