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News Release

Tianjin

Jones Lang LaSalle:  Tianjin’s real estate sector remains healthy


• Office – Net absorption is on the rise

• Logistics – Opportunity still abounds in the logistics market

• Retail – Nanjing Road and Binjiang Avenue continue to reposition

• High-end Residential – Demand and prices are trending upward

Office – Grade B offices space is the major force behind net take-up

Leasing demand remained resilient in 3Q13. Year-to-date net absorption reached approximately 47,000 sqm, eclipsing the total net take-up of 2012. Driving overall net absorption has been the Grade B office market, which accounted for 64% of net take-up in 3Q13. The majority of Grade A net take-up occurred in the Tianjin World Financial Center, which is the only Grade A building with large amounts of vacancy.
 
Helping to propel leasing demand were domestic firms. Domestic firms represented 92% of total leasing demand this quarter, with firms in the finance and professional services sectors accounting for approximately 65% of the demand. Lv Weiran, Head of Markets at Jones Lang LaSalle Tianjin, commented, “The finance and professional services sectors have been key contributors to demand for the last several quarters and we forecast that they will continue to be the major drivers of office demand in both the Grade A and Grade B markets. This is a good sign for landlords because these firms tend to pay higher rents.”

No new supply entered the market in 3Q13, as more developers continued to delay the opening dates of their projects. However, by the end of 2013, three new Grade B office buildings are still expected to open on time, increasing total stock by nearly 200,000 sqm to 1.3 million sqm (GFA). Of the three new buildings, two will be located in non-traditional office submarkets, a trend that is forecast to continue as more buildings along the Haihe edge closer to completion.

Both Grade A and Grade B gross rents remained relatively flat. At the end of 3Q13, Grade A rents were unchanged at RMB 5.0 per sqm per day, while Grade B rents experienced slight growth, increasing 1.9% y-o-y to RMB 3.9 per sqm per day. With more supply expected at the end of the year, overall rents are forecast to remain stable through 2013. Although overall rents are not expected to grow, some submarkets, such as Youyi Road and Nanjing Road, are predicted to outperform others.

Logistics – Alibaba launches a new 100,000 sqm warehouse

Total stock in the logistics market increased 100,000 sqm (GFA) with the completion of Alibaba’s first warehouse in Tianjin, Alibaba Logistics Park in Wuqing District. The completion of the Alibaba Logistics Park helps to solidify the district as an emerging logistics hub. Wuqing District is becoming a popular place among logistics developers due to its developed infrastructure and the land that is still available for the development of logistics parks.

Demand in the logistics sector has been robust, particularly for non-bonded warehouse space. With the rise of e-commerce, a growing retail sector in Tianjin and an expanding manufacturing base, yearly net absorption has averaged approximately 180,000 sqm since 2009. Durrell Mack, Head of Research at Jones Lang LaSalle Tianjin, said, “The demand from retail companies has been unprecedented in the last couple of quarters. We have seen fast fashion and e-commerce firms increase warehouse demand to more than 10,000 sqm on average.”

Despite the growth in demand, overall gross rents remained relatively flat at RMB 1.0 per sqm per day. Keeping rents flat has been the continued increase in new supply over the past few quarters. In the long run, the continuous increase in new supply is expected to abate, as the government has become less willing to allocate land for warehouses. Jason Wang, Head of Industrial at Jones Lang LaSalle Tianjin, points out, “The logistics sector has the best potential upside for investors with demand continuing to be strong throughout the market and a potential supply shortage in the future. The logistics market may be the last bastion of low hanging fruit in Tianjin’s real estate market.”

Retail – Competition increases in the Old Town retail catchment

One shopping mall, Tianjin Lucky City, opened in 3Q13, increasing total stock by 113,000 sqm. Tianjin Lucky City will increase the competitiveness of the Old Town retail catchment and provide shoppers that live in the area with more retail choices. The Old Town submarket now has five shopping malls, the highest concentration of shopping malls in the city. As more retail projects are built in the area, the competition for shoppers’ attention will only increase. Sunny Yin, Head of Retail at Jones Lang LaSalle Tianjin, commented, “As more retail projects are built across the city, landlords will have to work harder to entice shoppers through their doors. It will be important for landlords to create new retail concepts and bring in new brands that are not in other shopping malls in the city, in addition to providing attractive retail environments and quality service.”

Retailer demand has been fairly strong in the city despite an increase in the vacancy rate in 3Q13. The overall vacancy rate rose 4.1 percentage points q-o-q to 7.7%. Causing the vacancy rate to increase were projects located along Nanjing Road and Binjiang Avenue, where landlords have recently been undertaking repositioning in an effort to upgrade their tenant mixes. Increased competition from new shopping malls across the city has required landlords in the traditional retail catchments, such as Nanjing Road, Binjiang Avenue and Heping Road, to modernize their tenant mixes. One of the more active retail projects along Nanjing Road was Robbinz Department Store, which recently signed Swatch and What For. International Plaza was also active, leasing space to caffe bene and I-Nako.

Over the next few quarters, leasing demand is expected to remain robust as more retailers enter the Tianjin market. With new supply forecast to be limited between now and the end of the year, the overall occupancy rate is anticipated to remain well above 90%, helping rents to grow at a steady pace.

High-end Residential – Prices continue to rise

The high-end residential sales rate increased 7 percentage points q-o-q, with approximately 1,250 units sold in 3Q13. Although the total number of units sold grew 23.8% q-o-q, units sold fell 15.9% compared to the third quarter high of last year. During 3Q13, units sold outpaced newly launched units, indicating that there is a healthy amount of demand in the high-end residential market.

Approximately 1,000 units from seven high-end projects were released to the market in 3Q13. Of the seven projects, Glorious Palace and Yanlord Riverside Garden were amongst the most popular, together selling almost 200 units. Other projects that had high levels of sales activity were COFCO Avenue, Legendary Achievements and Glorious Palace; each sold more than 100 units. Helping to boost sales during the quarter was the “Golden Week”, which is a traditional period of increased home buying.

The rise in activity during 3Q13 caused home prices to grow 2.1% q-o-q to RMB 21,800. This is the largest quarterly growth since the government began to implement policies to suppress residential home prices. The fact that home prices are only growing by around 2%, as opposed to the double-digit quarterly growth seen in the past, signals that the government policies to control housing prices are working. Michael Hart, Managing Director at Jones Lang LaSalle, said, “We are bullish on the long-term prospects of the housing market, as higher urbanization rates, rising incomes and continued strong demand are providing a strong foundation for growth in the housing market.”    
 
In 4Q13, the sales rate in the high-end residential market is forecast to rise by 14 percentage points to 49.4%. Even as more units are sold in the housing market, the overall price of housing is expected to remain stable, only increasing slightly quarter on quarter.