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News Release

TIANJIN

Jones Lang LaSalle: Developers pave way for the new submarkets as Tianjin property sector reaches critical mass


With land scarce in the central areas and retail sales booming, developers are expanding aggressively into areas outside of previously established submarkets.  "With the opening of the Tianjin World Financial Center, the Haihe Riverside submarket will see significant real estate activity in the next several years,"  as noted by Michael Hart, Jones Lang LaSalle’s Managing Director for Tianjin.  For the Retail market, a number of developments in primarily residential areas are now under development adding conveniences for consumers and consumer brands, easy accessibility and brand infiltration respectively.  In the next few years, Tianjin is expected to see the continuous development of new submarkets as new neighbourhoods reach critical mass.
  • Office – Tallest Tower in Northern China, Tianjin World Financial Centre opens in 3Q11
  • Retail –Leading developers focus on building retail in Tianjin residential submarkets
  • High-end residential – Overall prices flatten, while developers focus on differentiation
Office – Tallest Tower in Northern China, Tianjin World Financial Centre opens
 
Tianjin World Financial Centre (TWFC) [天津环球金融中心], located in the Haihe Riverside Submarket was completed in 3Q11 adding 205,000 sqm of office space to the market.  Because the building effectively triples the size of the grade A office market, the addition of space pushed vacancy rates from 2.5% to 34.1% q-on-q.  A new selection of office space was gladly received by tenants who have had little space to expand.  Nearly half of the building was committed to tenants upon opening.  JP Morgan and Ceva Logistics have leased space in the building and CITIC Bank purchased a large block for self use.   We expect the building will continue to be taken up rapidly over the next year as leasing transactions were abundant during the quarter across the market. 
 
Domestic companies continued to be the dominant contributor driving absorptions in the market in 3Q11. China National Investment & Guaranty Co., Ltd. and Haitong Securities Co., Ltd leased over 1,000 sqm in TWFC and Ningtai Building respectively. Foreign professional services and financial firms also actively expanded their presence, taking up more than 30% of the total office space transacted overall. For instance, the Executive Centre, a leading serviced-office operator opened a new 1,500 sqm service outlet in TWFC, which was also the largest office transaction by leased area this quarter.
 
Due to the many pre-leasing transactions in TWFC, the absorption volume of Grade A office buildings exceeded that of Grade B office properties for the first time in recent years. The Haihe Riverside sub-market accounted for 47% of the total office transacted area due to the newly completed TWFC.  The leasing volume of Youyi Road Submarket was slightly lower than previous quarters, but primarily because most existing buildings were almost fully occupied. A few large new leases were signed in the Xinyin Builidng for tenants with half and full floor requirements.
 
Overall rents for office space in Tianjin averaged RMB 3.9 per sqm per day in 3Q11, a significant growth of 7.1% q-on-q, partially driven by TWFC’s entry into the market with significant space leased at market rates.  Strong leasing in the Grade B market also provide support to rental averages including activity in Tianjin City Tower and Xinyin Building as well as Ningtai Building all of whom increased rents.  The q-on-q rental growth was the fastest rate recorded since 1Q05.
 
Retail – Leading developers focus on building retail in Tianjin residential submarkets
 
Retail sales of consumer goods reached RMB 28.2 billion in Tianjin in July, an 18.9% y-o-y increase. Posting strong growth in terms of sales helped promote continuous development of retail project in Tianjin.
 
With land scarce in the central areas and retail sales booming, developers are expanding in areas that put them closer to residential areas and their key customers.  This quarter, one of such projects opened in Hongqiao District.  A number of other developments in primarily residential areas are also under development now and will open over the next few years. 
 
On September 29th, the only new market entrant this quarter, Aqua City [水游城] opened in Hongqiao District.  The project is a 190,000-sqm mixed-use development with retail, SOHO and a Hotel, Holiday Inn.  The retail portion is comprised of two retail blocks, A&B, with a total GFA of 70,400 sqm. The developer, Pengxin Group from Shanghai, successfully developed Aqua City Nanjing and used that as a model for the Tianjin project including similar trade mix, layout and even some of the same brands. Aqua City opened with an occupancy rate of 80%. One of its unique features is the water stage in the middle of the mall facing the main entrance, which offers various performances daily to attract consumers and create a unique atmosphere.
 
Aqua City is located in Hongqiao District, a growing residential area, far from popular shopping destinations.  However the project has direct access to the subway and has long main-street frontage providing tenants more exposure.  The project has a cluster of fast fashion brands on the ground floor, such as Uniqulo, H&M, and ZARA.  Inditex – the parent group of ZARA established outlets for five of their brands: ZARA HOME, Oysho, PULL&BEAR, Bershka, and Stradivarius. This is ZARA’s second outlet in Tianjin.
 
Another notable opening was the repositioning on the 2,386-sqm B2 of Modern City on Nanjing Road, in the basement of Isetan which has formerly hosted a Sego Sports store.  Modern Group, the developer of the project operates the ninth, eighth and B2 floors while leasing the rest to Isetan.  The refurbished B2 features F&B, lifestyle, gift & accessories and other tenants catering to the large number of nearby office workers and maximizing the adjacent subway station entrance.  Most tenants in the newly opened B2 level at Modern City are brands that are expanding from other projects in Tianjin, such as McDonald’s, Tudari, Helv Sushi and Mannings.  The repositioning has allowed the landlord to increase rental revenues substantially.
 
High-end Residential – Diversification seen in the market while the sales price growth is flat
 
Market activity has slowed somewhat, but prices have not declined significantly and Tianjin is seeing new unit types and sizes as developers look to differentiate.
 
Hutchison Whampoa launched their three high rise residential towers in their mixed-use project along Nanjing Road, Metropolitan Heights.  The project aimed to differentiate itself from other residential projects with several “rooftop villas” and large outdoor green space on top of its retail podium for its residents.  Another differentiation tactic by other developer is the introduction of one large unit per floor fitted-out unit.  In 3Q11, Tianjin Metropolis, developed jointly by Financial Street and Poly Real Estate, introduced a 646-sqm fitted-out unit per floor to the market. Given the large average size of each unit, they remain the largest residential units for sale in Tianjin’s high-end residential market thus far. It is also worth noting that the sales price for the large units averaged RMB 36,000 per sqm, making Tianjin Metropolis the most expensive high-end residential project in the city to date.  The sales price is at 50% higher than the average for traditional units in the same project and 65% higher then the high-end residential market as a whole in comparable.
 
Another key new launch in 3Q11 was Yanlord Riviera (also known as Yanlord Riverside Gardens [仁恒河滨花园]) located in Hebei District.  Continuing with a differentiation development pattern, Yanlord had the first entry advantage in Hebei District with its project as the area’s first high-end fitted-out project.  Historically, Hebei District’s residential project dominantly focuses on the mass market. Yanlord Riviera is expected to lead the way for similar high-end residential developments in the district over the next few years.
 
The sales price for Tianjin high-end residential market averaged at RMB 21,800 with the transaction volume of nearly 900 units in 3Q11, both prices and volumes saw minimal growth compared with the previous quarter. Since the government has not eased its policies aimed at controlling housing prices, most developers preferred to offer more incentives to potential purchasers or increase its marketing effort than reducing sales prices. Among the most popular marketing measures are higher discounts and complimentary home appliances, along with some new promotional offers, such as returning cash to the buyer and allowing purchases by groups, etc.