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News Release


Tianjin's Commercial and Industrial Properties in Higher Demand

Rentals in both the office and logistics markets were observed to have climbed for the first time since the market was impacted by the financial crisis in late-2008. “This is a clear indication that corporate tenants and 3PLs are growing in response to the steady growth of the domestic economy," noted Michael Hart, Jones Lang LaSalle’s Managing Director for Tianjin. Meanwhile, surging residential prices has curbed demand for high-end residential units, while tightening policies released in 2Q10 further suppressed purchasing power.
Tertiary-industry tenants become active – After seeing shrinking demand and decreasing rental rates in 2009 in the previous quarters due to the economic recession, both rents and overall demand increased in both the Grade A and B markets in 1H10. The major demand drivers of Tianjin’s office market – particularly finance, logistics and shipping, as well as trading and professional services – regained their momentum in 2Q10, contributing over 70% of the quarter’s transacted area. Most transactions were still generated by domestic tenants; however, we are well aware of the revival of MNCs. The first foreign bank expansion in 2010 – Standard Chartered Bank's lease of a new sub-branch in Global Center – is an indication of the recovery of foreign banks’ businesses. Spurred by active leasing demand, the average gross rental for Tianjin office reached RMB 3.53 per sqm per day, an increase of 3.6% q-o-q.
“Unlike the past few quarters when tenants took advantage of low rentals to relocate to more prestigious projects, majority of transactions seen in 2Q10 came from new-set-up companies, which indicates that enterprises have very strong interests in expanding into Tianjin," said Lv Weiran, Associate Director of Markets at Jones Lang LaSalle Tianjin.
Steady expansion continues –Following the opening of Zara and Mango in 2008, and Uniqlo's opening in Tianjin in 2009, several European fast fashion retailers are successively making their debuts this year, focusing on projects along Nanjing Road. The first H&M store is now undergoing fit-out on the ground floor of Robbinz Department Store, occupying 2,100 sqm. Additionally, Asobio from Italy will open in International Plaza in September. Other international retailers are also actively stretching to Tianjin after opening in first-tier cities. For instance, Japanese lifestyle retailer – Muji opened its first store in the city in Milenio in May by leasing 600 sqm.
Meanwhile, Asian cosmetics brands that target the mass market are expanding in a number of projects in the city’s major submarkets, including Nanjing Road, Binjiang Avenue, and Nanshi Dongma Road. The Face Shop and Skin Food from Korea and Japan's DHC are the most active ones. Hong Kong cosmetics retailer, Sasa, has also secured space in the Xiaobailou area for its first store in the city. No new supply was delivered in 2Q10, which led to a further drop in the vacancy rate to 6.4%. 
The opening of large-scale shopping centers featuring more creative designs and layout will happen between 2011 and 2013. These projects, such as Joy City and Yanlord Riverside Plaza, have announced that they are introducing a series of brands never-before-seen in Tianjin. The concept and culture of these brands are anticipated to gradually change the habits of Tianjin's consumers.
High-end Residential
Demand suppressed by tightening policies and soaring prices – The prices of Tianjin’s high-end residential projects continued to soar rapidly since the beginning of 2010. In April, a series of tightening measures aimed to restrain housing prices were introduced by the central government; consequently, prices of high-end residential went flat in May. Nonetheless, by the end of June, prices still posted a 12% q-o-q growth in 2Q10, reaching a new record of RMB 19,284 per sqm. The excessively climbing prices have also made many buyers temporarily hold back their purchase plans. Meanwhile, developers launched a limited number of units to the market in 2Q10, equaling half of that in the previous quarter. The only new project launched for pre-sale in 2Q10 was Boxuanyuan in Hexi district, delivering 470 core-and-shell units to the market.
Amid all these factors, the transaction volume of high-end residential properties declined 47% q-o-q to 359 units in 2Q10, the lowest on record since 2007. Projects developed by well-known developers in primary locations continued to maintain relatively high transaction volume. Among these, Golden Class along Nanjing Road, R&F City phase III, and Yanlord Riverside Plaza in Old Town Area achieved the most transacted units, comprising more than 50% of the total transaction volume of 2Q10.
Further firming up – New warehouse completions for 2010 are all scheduled in 4Q10, thus no new project was delivered to the market in the second quarter. Vacancy rates for both bonded and non-bonded warehouses underwent substantial decrease in 2Q10, declining 7% and 18%, respectively, from end-2009. The occupancy rate in East Port, which hosts one-third of Tianjin’s total bonded stock, has kept rising since the first project started operations in late-2007 as Tianjin Consol International Co Ltd, Tianjin Port Pacific International Container Terminal Co Ltd, and several other domestic logistics and shipping companies rented space in East Port. However, the vacancy rate is still over 60% for the East Port.
The largest transaction of 2Q10 was Volkswagen Group's leasing of 50,000 sqm of space in Blogis (Tianjin) Logistics Center, located in Tanggu National Marine Hi-Tech Development Area. Benefiting from growing demand, the first rental rise since the economic downturn in 2H08 was recorded this quarter. Overall average rental reached RMB 0.8 per sqm, a slight 1% rise over 1Q10. Boosted by the steady domestic market, the business of logistics and shipping companies has notably improved in 2010. Moreover, further economic recovery in Europe and America will also be critical in giving a fresh impetus to the industry.
Foreign and domestic investors each take what they need – Several major investment deals were closed in 2Q10. The newly completed Xinyin Building along Youyi Road sold its retail podium and low-zone office to Bank of Communications, while the rest of the building has been opened for lease and sale. Domestic financial institutions, particularly banks and insurance companies that are backed by rich financial resource and strong domestic market, will continue to show an appetite for the acquisition of properties that are not necessarily wholly owned.
Tysan Holdings Limited, the developer of Tianjin International Building along Nanjing Road, sold this wholly-owned property to Arraya Worldwide Inc for HKD 870 million in June. The project, which is well-known as the first Grade A office project in Tianjin completed in 1991, has a total GFA of 52,700 sqm, comprising office and serviced apartments. Insufficient stock of quality projects with single ownership is a main barrier that prevents international investors from entering many of the second-tier cities. We expect to see more multiple-floor or even en bloc transactions as more well-managed office projects with better-specifications emerge in Tianjin in the future.