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News Release

TIANJIN

Jones Lang LaSalle: Retail market takes spot light, adding new supply with decreasing vacancy rate while other markets continue to deliver through economic uncertainties.


Market players act cautiously as economic climates and government stimulus measures present mixed messages of rebound.

• Office – Office leasing demand strong in existing project, but quiet in overall market
• Retail – New project added supply as new brand entries lowered vacancy rate
• High-end Residential – In the midst of lowered prices, and tightening measures, developers continue to add new supply
• Logistics - Demand from the tertiary industries surge

Office – Absorption slows as no new supply enter and existing projects reach capacity

Tianjin’s office market take-up volume recorded an upward trend q-o-q in the 1H12, albeit a subdued overall leasing volume as companies await economic stimulus to take effect.  Vacancy rate at existing Grade A properties, such as The Exchange Tower 1 & 2, both have reached lowest recorded vacancy rate at 2% and 3% respectively.  Overall office market vacancy rate decreased slight by 1.0% q-o-q to 15.3 % with no new supply launched in Tianjin year-to-date, total stock is at around one million sqm.  As no new supply is expected to be completed in 2012, rentals for the next few quarters will most likely remain stable, with the exception of Tianjin World Financial Centre (TWFC).  Due to the large supply at the TWFC, representing almost 70% of the Grade A stock, it is expected that the developer will implement more marketing strategies to drive absorption as new enquiries are fewer. Consequently, we expect slower rental growth momentum for Grade A properties, but should still maintain an upward trend in 2H12.  In other properties, developers are holding firm on rental prices taking a wait-and see attitude on their pricing adjustment.

For 2Q12, domestic tenants represented 80% of the transactions completed this quarter with a few large transaction volumes from financial and trading companies.  Most of domestic companies’ office activities took place in the Youyi Road submarket in Grade B properties. Average achieved overall rental is at RMB 4.1 per sqm per day, a minimal fluctuation of 0.8% growth q-o-q.
Tianjin continues to see delay on its on-going developments due to construction progress, relocation difficulties, and the government’s ever changing infrastructure plans, particularly the Haihe Riverside submarket.  Previously projected supply entry in 2012 – the Golden Valley, a 71,800 sqm Grade B office project in the Haihe River submarket - will be delayed to 2013.  Looking forward, supply shortage in 2Q12 will continue to drive down vacancy rates until recognized projects like Hutchison’s Metropolitan Tower Tianjin enter in mid-2013.

Retail – Xiaobailou Submarket saw the entrance of new supply in 2Q12

Youyi Gallery, operated by Tianjin Yishang Boutique Plaza Co., Ltd., held its ground opening in April, 2012, adding a total GFA of 50,392 sqm to the Xiaobailou submarket. This is the second middle-high-end retail property in Xiaobailou Submarket. Two-storey flagship stores of high-end brands such as Montblanc, Bally, and HUGO BOSS helped the project to achieve nearly 100% occupancy. Contributed by the high occupancy rate of new supply and retailers’ active expansion in existing projects, the overall vacancy rate fell further from 3.7% in 1Q12 to 3.4% in 2Q12.

Strong leasing activities in recently opened projects help satisfy brands’ expansion into Tianjin.  New entry and expansion activity this quarter can be seen from high-end, middle-end, fast fashion, and F&B categories. Friendship Department Store in Youyi Road Submarket introduced Longines, Rolex and Blancpain on its ground floor, as Coach added another Tianjin store in the Lotte Department Store located in the Old Town Submarket.  Satisfying another consumer group, fast fashion brands like Gap, Asobio and Muji all opened new stores in Joy City, while H&M accelerated its expansion adding two stores this quarter at Joy City and Hedong Wanda Plaza.  Catering to the mass public, F&B choices steadily increased with new openings in Aqua City, Joy city, and adjustment of New World Department Store to add more F&B tenants.

As future supply focus on shopping center mostly, Tianjin retail market structure is undergoing a transformation changing from traditional department stores to large-scale shopping malls. The competition to capture a larger market share in Tianjin will become even more challenging especially for those projects with inferior specification and management practices. In order to comply with the demands of retailers and remain competitive, those projects may choose to reposition and adjust the tenant mix. 

High-end Residential – Declined prices help boost demand temporarily

In 2Q12, Tianjin's high-end residential market saw dynamic activity, with both supply and demand picking up to reach the highest quarterly figures since 2008 in terms of newly launched units and transaction volume. However, sales prices fell amid price cuts seen in most sub-markets.

A considerable amount of supply entered the Tianjin high-end residential market in 2Q12, with a total of nearly 1,800 units in six projects. Although the tightening policies governing the residential market remained in place, most developers continued to stick to their sales plans. Three brand new projects -- Glorious Palace Phase 1, Legendary Achievements and Wanda Mansion -- launched nearly 1,000 units for pre-sale in the quarter. In addition, three existing projects already up for pre-sale in Nankai District, including Yanlord Riverside Plaza Phase 2, Pl Du Pantheon and Diamond Hill, provided another 800 units to the market.
Demand in the Tianjin high-end residential market kept pace with supply. Compared with the previous quarter, sales volume increased significantly, totalling 1,600 units for a 115% q-o-q growth.  This soaring demand was due to a variety of reasons. First, the “trade price for sales volume” strategy was adopted widely by more developers and spurred demand. In addition to the projects that had provided discounts in previous quarters, more existing projects started to offer discounts or entered the market at a lower price in a bid to increase market share. For example, the newly launched project Glorious Palace enjoyed a strong sales performance and all available units were sold in 2Q12 mainly because its sales prices were 20% lower than surrounding competitive projects. Secondly, commendable product quality proved to be another effective way to increase sales, with Yanlord Riverside Plaza a good example of this strategy. Last but not least, China’s central bank cut deposit and lending benchmark rates by 0.25% on 8th June, easing pressure on homebuyers slightly, encouraging some potential buyers and boosting sales to a certain extent.

Sales prices averaged at RMB 21,150 per sqm in 2Q12, a slight decline of 1.2% q-o-q or 2.5% y-o-y. Throughout several rounds of control measures, we have seen that the market is undergoing a gradual self-correction. Although the main direction in terms of the restrictions on residential property purchases is not reversal, the fine-tuning adjustments, such as the recent reduction in the interest rate, were intended to correct the market further.


Logistics - Mild growth was recorded in both bonded and non-bonded rentals

No new logistics properties completed in 1H12. The majority of leasing transactions in 2Q12 were observed in projects completed in the past year. The vacancy rate remained stable, rising slightly by 0.5% q-o-q to 12.2%.In addition to the traditional drivers of third-party logistics providers and manufacturing tenants, demand from companies in tertiary industries— particularly the e-commerce sector driven by sustained domestic consumption—has surged since 2011.


After several quarters of difficult negotiations with the local government, several international logistics developers finally achieved a breakthrough, announcing plans for new facilities. In addition, many of them also secured build-to-suit deals with well-known B2C e-commerce retailers. Notable deals included Goodman, with plans to build two warehouses with a total GFA of 42,000 sqm for Moonbasa as its headquarters in northern China; and Global Logistic Properties which has committed to 570,000-sqm land in Wuqing District to build logistics facilities for Amazon, one of the largest online retailers in China.

On-going mild rental growth was recorded in both bonded and non-bonded projects. Most warehouses quoted the same rates as in the previous quarter, with only a few raising asking rents in response to active leasing of their available space. As a result, average rents in Tianjin’s overall market reached RMB 0.98 per sqm per day, up 1.6% q-o-q.