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News Release


Demand Picking Up, Active Leasing Market Seen in Guangzhou

According to Jones Lang LaSalle’s First Quarter Property Review

On the back of the economic turnaround and boosted by festive events in 1Q10 – and as the effects of the Asian Games gradually came to light – the vacancy rate for retail space in Guangzhou kept declining and rental prices leveled off, helping retailers regain confidence in the market. Thanks to the increasing demand for Grade A offices, leasing activities in 1Q10 were brisker than the previous quarter. The relatively high pre-occupation percentage of newly completed buildings continued to put pressure on the overall vacancy. As the net take-up of Grade A offices picked up, 1Q10 witnessed the rebound of overall rental price.

As the economy improved both home and abroad, manufacturers in the Pearl River Delta Region started showing signs of revival. Foreign industrial investors were bullish on the industrial market in South China and there was strong demand for leasing logistic and industrial parks. This resulted in a slight climb in rentals during the quarter. Due to policy reasons, Guangzhou's luxury residential market witnessed declines in both the overall trading volume and the number of newly released projects in 1Q10. However, as the impact of new policies was actually minimal, buyers still expected property prices to keep surging, which further helped to raise demand. Meanwhile, the quarter saw a 7.8% q-o-q increase in capital values.

On the investment side, with growing uncertainties about the real estate market, investors tended to be more prudent. Although local investors prevailed in the market, more and more overseas counterparts were becoming active. It has been predicted that the withdrawal of centrally controlled enterprises from the real estate business would bring about more merger and acquisition opportunities in the industry.
“We have seen some tactical movements of large MNCs in South China this quarter, suggesting the strategic position of this area,” said Jex Ng, Managing Director at Jones Lang LaSalle Guangzhou and Shenzhen. “With the economy taking a turn for the better and the Asian Games as a driving force, we firmly believe that Guangzhou will witness a steady growth in the commercial real estate market in 2010 despite possible constraint of the policies,” Ng added.


With the gradual recovery of the economy driven by festivals like New Year’s Day, Spring Festival, Valentine’s Day, and Women’s Day, the consumer market of Guangzhou maintained a steady growth in the first quarter. From January to February, the total retail volume of Guangzhou reached RMB 6.53 billion, up 20.2% y-o-y. Due to the low vacancy rate of prime retailers in Guangzhou and the constant increase in the number of brand retailers, the rental price recorded a fast growth in 1Q10, up 3.5% q-o-q. Nonetheless, with a low base in 2009, the rental price kept the same y-o-y.

As the level of consumption of Guangzhou residents kept growing, brand retailers were actively implementing their expansion plans to increase market share, resulting in a low vacancy rate for nearly all shopping centers. In 1Q10, the second tier brands, F&B stores, and entertainment projects also witnessed eye-catching demand. With more and more supply of retail space, new cinemas were vying to open business in the first quarter, including Poly International Cinema at Poly Zhonghuan Plaza and Golden Harvest Cinemas at Gate 5 Mall. Expressing great interest in newly emerging retail business areas, foreign department stores have competed against local counterparts for large projects at Zhujiang New Town, where multiple large shopping centers will be completed in 2010. Banking on unique designs, strong market promotions, and positioning, these new shopping malls will attract many different types of retail stores from home and abroad, and their pre-leasing conditions are better-than-expected so far. More importantly, many tenants have entered the Guangzhou market for the first time. This is an indication that the domestic and foreign retailers have full confidence in the Guangzhou market in 2010. In short, the vacancy rate of shopping centers continued to fall, and the demand for prime space increased. This means that retailers continued to have confidence in the market.

The 2010 Asian Games, which is set to be held in Guangzhou this year, is expected to drive consumption of tourists and local residents. Retailers are therefore willing to take this opportunity to increase the visibility of their brands and the sales of their products. In particular, sports brands, casual garments, catering, and entertainment sectors will roll out aggressive plans to open stores; thus, driving rental prices up. “It is predicted that the Tianhe Business Circle will benefit greatly from the swarm of tourists and newly launched large shopping malls. This will allow the rental rates to jump significantly,” noted Simon Lam, Head of Retail at Jones Lang LaSalle Guangzhou and Shenzhen.

Grade A Office

Steady economic recovery backs up new expansion demands from domestic/foreign enterprises, which further boosted the leasing market of Grade A offices in Guangzhou. Some of the foreign enterprises whose overall leasing demand shrank last year have begun to implement their relocation and expansion plans once again. In 1Q10, the leasing rate of Guangzhou International Financial Square reached as high as 99%. This quarter also witnessed HSBC renting 71,000 sqm of space in Taikoo Hui. This is the largest office leasing transaction in the history of South China, setting a new milestone for the office market of Guangzhou. These leases will further attract more companies from the financial and special service sectors, such as law firms and accounting firms, to enter the Tianhe district. As such, the Tianhe CBD will become more international in terms of its makeup.

The first quarter saw low new supply and only the north tower of GT Land Phase II was launched. The limited new supply and relatively high pre-commitment rates of the new buildings caused the continued decline of the overall vacancy rate to 15.2%. As the leasing market became more active than last quarter, the net take-up in 1Q10 rose to approximately 50,000 sqm, while the overall rental of Grade A offices grew slightly by 1%.

This year, about 560,000 sqm of new supply will be completed in Guangzhou' Grade A office market before the Asian Games; and all the new establishments, except OneLink Walk, will be located in Zhujiang New Town. “The completion of many new projects will add pressure to the landlords, and the market is increasingly becoming tenant-oriented. As landlords try to attract and retain tenants, the market will have a tug of war over rentals, which is beneficial for tenants as they can negotiate for better terms. Hence, rentals will still stay in the decline cycle in the short term,” said Victor Mar, Head of Markets at Jones Lang LaSalle Guangzhou.


Domestic demand for industrial space in Guangzhou kept growing in 1Q10. As the global export market improved, the Pearl River Delta saw the recovery in the manufacturing sector, while export in Guangzhou grew robustly. Meanwhile, due to improvements in the domestic economic situation, there was strong leasing demand from local retailers for logistic parks. For logistics space, the overall vacancy rate declined to 12.4%, and rental grew slightly by 1.2% q-o-q.

After the downturn due to the global financial crisis, three foreign logistic property giants – ProLogis, AMB Property, and Goodman Group – expressed their interest in entering or making additional investment in the South China market in 1Q10. At the same time, several large domestic investors announced their intentions to invest in the industrial property market of South China. ProLogis is the first company to accelerate the pace in making arrangements in the Pearl River Delta Region. This February, ProLogis Investment Management (China) Co Ltd signed an intentional investment agreement with the Office of West Zone of Zhongshan to work together to build ProLogis Zhongshan Logistic Park. According to ProLogis, the first project will be completed prior to year-end. It is expected that the logistic market of South China will remain active over the next two years as a result of the substantial investment of these logistic enterprises.

As for industrial parks, the government has released policies to attract enterprises to build their headquarters in the area. Thanks to these preferential policies, this quarter saw the entry of more enterprises. In particular, with the recent launch of the headquarters economy zone in the Scientific Park, the entry rate rose significantly, and the rental of industrial parks increased by 0.6% q-o-q in 1Q10.

According to Amy Zhang, Manager of Industrial at Jones Lang LaSalle Guangzhou, the recovery of the global export market is expected to stimulate the export market of the Pearl River Delta, which in turn will boost the logistics park of Guangzhou. As it is predicted that the vacancy rate will decrease and demand will grow, the rental price is expected to go up in 2010. In addition, as the governments give more policy support to the service sector and hi-tech manufacturing sector, the demand for industrial parks will be expanded.

High-end Residential

In 1Q10, as a result of uncertainties about the new policies for the property market, buyers and developers adopted a wait-and-see approach, thus dragging both the new supply and the trading volume of luxury apartments downwards. This quarter registered 409 newly released luxury apartments and sold 495 units, down 79% and 58% q-o-q, respectively. After two sessions, the new regulatory policies over the property market became moderate and did not affect the market sentiment too much. Buyers began to turning back to the market, and property price was predicted to keep growing in the near term; therefore, pushing up the capital value by 7.8% q-o-q. As a result, the purchasing demand rebounded gradually in March. In the leasing market, the demand for high-end residential in the Tianhe CBD tended to spring back, causing rental to jump to a small margin by 0.6% q-o-q.

It has been predicted that 5,000 new luxury apartments will be released in 2010, down 23% from last year. Meanwhile, as the government enlarges the supply of land for low-income housing, there is a growing fear that the land supply for the luxury residential segment will shrink. On the demand side, with developers increasing the supply of luxury apartments and the revival of demand in 2Q10, it is anticipated that trading volume will also improve. Presumably, the presence of potential buyers with improving living standards and investment backed by a steady economic recovery will continue to support the demand for the high-end and luxury residential market. Although the overall market is improving, buyers remain concerned that the government may strengthen the regulation and control of the property market in 2H10. This is the reason behind the prediction that property prices will remain steady and a slight growth is possible this year.

According to Jack Tang, Head of Strategic Consulting at Jones Lang LaSalle Guangzhou, as the market has a robust demand for land, land price is expected to remain high over the short term. The “land application” approach to be implemented will pose little impact on the increase of property prices. Based on the experience in Hong Kong, the “land application” approach will reduce land supply instead. Although the “land application” procedure will be introduced any time soon, the question of whether developers will get hooked to the land or not depends on their development strategy. Moreover, if the base price of land is higher than the target price of developers, it will take a longer time for the “land application” to succeed. Jack Tang suggests that: 1) more transparency should be added to the “land application” procedure of the government; 2) attention shall be given to the “hook-to” land price to curb irrationally rising land price; 3) land supply shall be diversified and kept in compliance with the development of the urban rail transit to meet the different levels of housing demands; 4) the “land application” system shall be carried out in parallel with the existing land auction policy to supplement each other. Moreover, the increasing supply of price-limited houses will play a certain role in promoting social harmony, according to Jack Tang. Although it will not dramatically affect the total land supply this year and the next, the market may fret about the decrease of supply of luxury residential apartments.


To stabilize the real estate market, the government is expected to issue more stringent policies in 2010, and investors in the industry will stay relatively prudent. However, the increasing uncertainty in the real estate investment market may possibly give rise to more opportunities for investors.

Foreign investors such as international investment institutions and real estate funds are actively seeking opportunities in China. Residential projects, due to enormous market demand and high ROI, are becoming their favorites. Though foreign investors are more vigorous than last year, domestic investors are playing a dominant role in the current market.
Under the policy pressure, those centrally controlled enterprises not focusing on real estate business will have to exit the real estate market and transfer their property assets. COSCO Group announced that COSCO HK, a subsidiary of COSCO Group, will withdraw approximately 8% of stake owned in SinoOcean Land within half a year. “Hopefully, such a movement will bring about more M&A opportunities in the industry, and some prime real estate business will catch the attention of the developers and investors,” said Tom Liu, Manager of Investments at Jones Lang LaSalle Guangzhou.


“With the further upturn of the economy in the Pearl River Delta and in China, the prospect of real estate in Guangzhou remains bright. The demand for offices will grow as both domestic and overseas enterprises expand their presence, but the enormous new supply will inhibit the growth of rental. The residential market still depends on the economic and housing policies of the state government and may have some ebbs and flows this year. But, the overall property price is expected to rise,” concluded Marcos Chan, Head of Research at Jones Lang LaSalle Greater Pearl River Delta. “In short, spurred by the economic growth, the real estate market of Guangzhou will see a steady and sound development.”