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News Release

Tianjin

Jones Lang LaSalle:  Property market activities pick up speed as stronger investment returns for all sectors


 

The recent turnaround in q-o-q and y-o-y growth in transactions across all sectors released positive signs into the market.  Jones Lang LaSalle believes market players will continue to take advantage of this lighter mood to rope in more transactions in the early months of 2013. However, continued policy easing would be needed to prolong the acceleration.
• Office – Vacancy rate continued its decreasing trend all year, as the market anxiously awaits new properties to test the office market’s appetite after five quarters of no new supply. 
• Retail – Retailers and developers maintain their confidence in Tianjin as new projects open and retail sales continue to rise.
• High-end Residential –New supply entry takes spot light as the number of units entered in 2012    
reach above all annual total since 2008, with demand growing steadily absorbing new units.
• Logistics – Supply and demand continues booming
 
Office - Gaining from the positive performance of Grade B projects, overall net absorption increased
Tianjin’s office market net absorption witnessed a significant increase although office users continue to keep a wait-and-see attitude toward leasing decision due to the economic uncertainty. Grade B offices, with transactions spearheaded by the TEDA Building in Xiaobailou submarket, accomplished significant take up as the property provided quality-improved spaces, sufficient leasable office areas, and relatively affordable rents. For Grade A office, transaction conditions did not improve significantly after Tianjin World Financial Center (TWFC), which have a price leadership position in the Tianjin office market, adjusted its pricing strategy in hope of increasing activities.
Supply entry for the office sector remains nil since 3Q2011, which was when TWFC entered the market influencing the Grade A and B supply dynamics.  Due to lack of supply entry, office space selections remain limited causing vacancy rate to be continuously driven down throughout 2012.
MNC tenants continue to hold a cautious attitude with domestic tenants remaining as the main drivers which represented 70% of the transactions completed in 4Q12 with some large transaction volumes accomplished by financial and trading companies. Compared to 3Q12’s rental indicators, the overall rent kept unchanged, averaging RMB 4.2 per sqm per day.
Starting from 2013, more office buildings are to be completed in Central Tianjin, which will add around 400,000 sqm office area in Haihe Riverside, Nanjing Road and Xiaobailou submarket. Per news heard in the market, some of the projects may be sold after completion, thus we do not foresee dramatic fluctuations in the leasing market from all perspectives including rental and supply. 
 
Retail – Leasing demand remain active
Tianjin retail market demand continued to be vibrant this quarter following an active quarter in 3Q12 by the Galaxy International Shopping Centre (Galaxy).  Leasing activities, mainly in new project - iShine City on Youyi Road, can be seen from high-end kids, luxury and middle to high-end fashion categories etc. Especially, leasing demand among children’s brands went up, with Toys ‘R’ Us opening its first Tianjin store in Galaxy. International kid brands, such as KENZO kids, Catimini and Supré Tots, also opened successively in the same project this quarter.
Due to overall good sales performance from luxury brands, retailer of such type still hold their confidence in Tianjin market. Hisense Plaza, as one of the high-end shopping centre in Central Tianjin, is currently undertaking brand adjustments.  Some of its activities include new watch brands, such as Audemars Piguet, IWC and Panerai are fitting-out their space, Emporio Armani opening its first self-operated chain store in Tianjin, and other luxury brands’ expansion, such as Burberry and Max Mara scheduled for completion by March 2013.
New supply entry this quarter is from the iShine City in the Youyi Road submarket, which opened end-December adding a total GFA of 99,000 sqm to the market. This project targets the mass market and has achieved nearly 100% occupancy. Overall vacancy rate remained low at 3.6% this quarter reflecting accomplished transaction at Galaxy and limited available space in the market.
Although Tianjin retail market remains energetic, the slower economic growth environment in China is expected to affect retail sales growth speed. Thus, we believe that rental increase will be moderate over the next 12 months.
High-end Residential – Supply and demand kept its high level with a steady price
Sales volume in 2012 observed a significant increase of 90% y-o-y.  After a period of taking a wait-and-see approach in 1H12, nondiscretionary demand for residential began to pick up again. With increased available units and considerable sales volume, Tianjin high-end residential market sold nearly 1,400 units in 4Q12.  Demand was met largely by the newly completed projects, accounting for 40% of the total sales volume. Taking advantage of the convenient transportation and mature supporting community, projects located in core areas such as Heping District and Nankai District continued to be preferred by buyers. Sunac China Holdings Limited (Sunac), a Hong Kong listed company based in Tianjin with extensive residential development experience here developed two projects – PI Du Pantheon and Horizon Capital – contributed almost 30% of the total transaction volume in 4Q12.  Horizon Capital is a joint venture project of Sunac and Poly Real Estate.
Similar to the active demand activities, supply also maintained its strong momentum in 2012, which achieved the highest record since 2008.  This quarter, five projects all featured high-rise units, added nearly 1,700 units to the market.  Horizon Capital in Hexi District was the only newly debuted project this quarter accompanied by some later phases of projects adding units all along the Haihe River.  Haihe Riverside submarket has become one of the recognized high-end residential submarkets in Tianjin.  Arcadia Court and Wanda Mansion, located in the same submarket, also launched supplementary units this quarter.
Sales price averaged at RMB 21,050 per sqm in 4Q12, which is a minimal growth compared with the previous quarter. Developers in different districts adopted different marketing strategies.  Some of projects in traditionally popular residential submarkets, such as Heping and Nankai District, increased their price. While, those in emerging high-end residential areas like Hedong and Hebei Districts have offered varying price cuts to attract additional buyers.
Moving forward, we are expecting to see considerable amount supply enter in 2013 from later phases of existing pre-sale projects.  Demand will continue to be contributed mainly by purchase for housing need instead of speculation as government will continue to enforce housing purchase restrictions through 2013.
 
Logistics – Supply and demand booms

Robust demand drivers are mainly generated by domestic consumption-related manufacturing enterprises and third-party logistic providers. Notable transaction of the quarter was from Nestle’s leasing of the entire 24,000-sqm G Park Tianjin Phase 1, developed by Gazeley, in Beichen District. Average rental of quality warehouses in Tianjin averaged RMB 0.96 per sqm per day in 4Q12, rising 3.9% y-o-y.
The only two new projects completed in 2012 - GLP Park TEDA Phase 4 in TEDA and Meian Logistics Park in Beichen District - were delivered to the market during 4Q12, contributing 124,000-sqm new warehouse space. The market overall vacancy rate only slightly rose 1.9% to 12.8%.
We mentioned in 1H12 that several international logistics developers were in the process of negotiating with local government to construct more facilities, breakthroughs were finally achieved in 2H12.  Responding activities were witnessed from GLP, Goodman, and etc.  For instance, Goodman Phase 1 of Beichen Landport Logistics Estate, 58,510-sqm, launched construction in Beichen District October 2012 and is scheduled for completion in August 2013.  Project like such, GLP and later phases of other projects on construction are predicted to generate 500,000-sqm logistics space in the 2013 pipeline. We foresee the logistic market dynamics to change in the short term particularly the vacancy rate is expected to rise.