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News Release

Tianjin

Jones Lang LaSalle: 10.9% Y-O-Y Rental Growth Rate Hits Record High for Tianjin Overall Office Space since 1Q2005.


The Tianjin market concluded 2011 with record market growth across submarkets and steady demands.
Some of this year’s highlights include:

• Office – Grade A supply tripled in total spaces from 100,000 to 300,000 sqm. Rents saw robust growth, rising 10.9% y-o-y
• Retail – Large retail projects entered bringing new brands and retail formats to Tianjin shoppers. Tianjin saw most retail supply in recent year recording 384,000 sqm at the end of 2011 with high pre-commitment rates by retailers.
• High-end residential –Even with restrictive policies enforced by the government, Tianjin high-end residential sales price held its value with a slight growth of 2.2% y-o-y.

Looking forward, the property market will likely weaken over the near terms with slower expansions for 2012, as economic pressures are not likely to ease in the near future, given recent evidence that the economy growth rate has slowed along with tightening monetary policies.  But the broader picture is that supply and demand will come into balance for the property market sectors after the aggressive growth from 2010 into 2011.
 
Office – New supply greeted by strong demand

The Tianjin office market grew in size and geographic reach during 2011 and strong demand showed that even large new projects did not deter rental rates from growing.
 
Two new buildings were completed during the year including the Tianjin World Financial Center (TWFC), Tianjin’s tallest at 336.9 m and largest at 205,000 GFA.  Tianjin based Ningfa Group also opened Ningtai plaza, a 31,500 sqm building, in Nankai district.  Both buildings were the first major office towers to be built in their respective areas, and will be followed by new buildings in these submarkets in the next few years creating new submarkets in Tianjin.
 
With the current outlook for the global economy still in doubt, domestic firms provided strong leasing demand for the Tianjin market.  Six leases of over 1,000 sqm were completed in 4Q11, all by domestic companies.  Overall, local firms accounted for 85% of all leasing demand during the quarter.  Financial companies and professional service companies were the main driver for office space in 2011. Shipping and logistics firms along with trading companies, the traditional pillar industries, provided steady leasing demand in 2011.Expansion by existing firms is becoming a major force behind Tianjin office rental activities, accounting for 71% of all net take up in 4Q11. More companies choose to chose a new location for expansion and upgrade due to lack of space available and deteriorating qualities in their existing building.  For example, a local professional services provider engaged mainly in equity management, relocated from a Grade B office to TWFC, leasing more than 3,000 sqm.
 
Overall rents for office space in Tianjin averaged RMB 4.0 per sqm per day in 2011, a significant increase of 11% y-o-y and the fastest yearly growth rate recorded since 2005. Market conditions locally were strong during 2011 despite large amounts of new supply.  With the two new buildings opening, including TWFC, effectively tripled the size of the Grade A office market, vacancy rates grew from 8% in 2010 to 29% in 2011.  With only one project, Golden Valley, scheduled to be delivered in 2012 in the Haihe submarket, we expect rental rates to continue an upward trend.
 
Retail –New completions bring new concepts and brands to Tianjin
 
The fourth quarter retail property trends mirrored the previous 2011 quarters with new large retail projects entering, bringing new brands and retail formats to Tianjin shoppers while strengthening retail areas outside of Tianjin’s traditional high-street locations.
 
Largest new retail project of the year to open was Joy City, a 530,000 sqm mixed-use development, including retail space, apartments, offices, etc. The retail GFA of the project is 163,988 sqm divided into south and north areas, with different themes and trade mixes. Not only did the project introduce many new retailers to the Tianjin market, but Joy City specifications, such as width of corridors, ceiling heights, large public areas, are a clear differentiator compared to most other existing retail projects in the city. Yanlord Riverside Plaza which is anchored by Lotte Department store and opened in mid 2011, added an additional F&B element called Epicure Garden.  The 12,599 sqm , two-storey space features an indoor garden which uses natural light, statues, a stage, water and green plants to provide customers with an outdoor dining atmosphere at the basement level. This is unique in Tianjin and will prove popular during the cold winter months.
 
Although the amount of new supply in 2011 was the highest in recent years at 384,000sqm, retailer demand was strong as they continued to expand into new space. Thanks to the high pre-commitment rates in new completions in 4Q11, overall vacancy rates experienced only slight increases.
To cope with fiercer competition and responding to consumer’s pattern of trading-up, older projects like the Tianjin Friendship Store begin introduced niche luxury brands.  The project chose to focus on the rising watch connoisseurs in Tianjin, bringing in Rolex and TAG Heuer, to compete against the well-liked Hisense Plaza.
 
Three of the shopping malls completed in 2011 and totalling 300,000 sqm located in the NanshiDongma Road area and have greatly improved the retail offerings in this area.  The addition of a new Parkson will further boost the area’s retail offer allowing it to compete with other established sub-markets such as Binjiang Avenue and Nanjing Road.
 
High-end Residential – The Weakening of Sentiment across the Residential Market Curbed Both Demand and Prices
 
Looking back on the Tianjin high-end residential market over 2011, sales from newly-launched projects helped to push up sales volume in 2Q11 and 3Q11. However, despite adequate supply in the market, high-end residential demand in Tianjin declined in 4Q11 compared to the previous two quarters. In 2011, a total of 2,800 high-end residential units were sold, a figure nearly 10% higher than the same period in 2010.
 
The successive tightening policies released by the government seem to have minimal effect on the transaction volume.  However, the influence of some negative reporting on the housing market by the mass media was obvious in 4Q11.After conversations with -site residential salespersons, we concluded that the reports about housing buyers’ rights, caused by the price cuts in Shanghai in early October, prompted potential housing buyers to shelve their purchase plans. This could also be verified by the significant reduction in visits by house buyers immediately subsequent to the negative reports.
 
Three new high-end residential projects launched pre-sale in 4Q11, adding a total of 1,000 units to the Tianjin high-end residential market. These included the debut of Wellington International Community and Pi Du Pantheon, as well as some new available units at Tianjin Metropolis. All these new supply entered the market at the same time, prompting the various developers to adopt array of differing sales strategies in line with current market conditions.

The price in the Tianjin high-end residential market averaged at RMB 21,500 per sqm in 4Q11, a slight decline of 1.5% q-o-q, and a growth of 2.2% y-o-y. In contrast to the previous two years, the increase in high-end residential prices in 2011 illustrates a notable slow down. In light of the multiple measures aimed at controlling soaring residential prices, such as the limitation of residential purchasing rights, the increased down payment and mortgage rates, as well as the banks’ tightening restrictions and long processing times on mortgages, some buyers were not privileged to purchase houses, while other buyers held onto expectations of a price decline and postponed their purchasing plans. For central and local governments, the stable price growth in 2011 confirmed that their tightening policies had been effective. Meanwhile, developers in all likelihood felt the pressure caused by the reduction in residential demand, and offered exploratory price cuts in order to attract potential buyers.