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News Release


Jones Lang LaSalle:  New supply in 2013 enhances Tianjin’s real estate market

According to Jones Lang LaSalle Tianjin Fourth Quarter Property Review

Strong demand causes Grade A office vacancy rates to fall; More quality warehouses improve the city’s stock; Landlords in traditional retail catchments rethink their strategies; High-end Residential prices begin to accelerate

Office – Demand for office space increases in 2013

Net absorption slowed. Net absorption slowed in 4Q13 to a mere 2,100 sqm. However, for the whole of 2013, net take-up was approximately 49,000 sqm, which was higher than the 42,500 sqm achieved in 2012. Most of the net absorption during 4Q13 occurred in the Grade A market, with the Tianjin World Financial Center responsible for the majority of the new demand. As for the year, the Grade B market was the main contributor to the overall net absorption, accounting for 73% of net take-up. The strong demand throughout the year helped to push the Grade A vacancy rate down 4 percentage points y-o-y, keeping the Grade B vacancy rate from taking off despite an increase in new supply.

Demand in 4Q13 resembled the rest of the year. Demand in 4Q13 resembled the rest of the year, with domestic financial and professional services firms driving demand. The Tianjin government’s focus on expanding the service sector was the force behind the rise in demand from these firms. Michael Hart, Managing Director at Jones Lang LaSalle, said, “The municipal government expects the tertiary industry to overtake the secondary industry as the main contributor of GDP in 2013; we view this as a boon for the office market, because the tertiary industry is what is driving office demand.”

New supply in 2014 will expand. Only one new building, Golden Valley in the Haihe Riverside submarket, entered the market in 2013. The new office tower added approximately 71,000 sqm to the Grade B office stock. There was no new supply in the Grade A market, which left the Grade A stock unchanged at 307,951 sqm (GFA). The Grade B market ended the year with a total stock of approximately 850,000 sqm. While 2013 was a year with limited supply increases, 2014 is forecast to be the opposite, as 16 Grade B and one Grade A building are expected to be completed. The rise in new supply is predicted to change the face of the city and provide more quality office space for domestic and international firms. Lv Weiran, Head of Markets at Jones Lang LaSalle, pointed out, “Large increases in new supply will turn the city into a tenant-favorable market. Landlords will need to adopt multifaceted strategies to keep and attract tenants.”

Supply pressures are expected to cause rents to fall. Rents in both the Grade A and Grade B markets remained largely unchanged q-o-q. During 2013, Grade A and Grade B rents rose by approximately 1% and 2% to RMB 5.0 and RMB 3.9 per sqm per day, respectively. 2013 is expected to be the last year of positive nominal rental growth, as supply pressures are expected to cause rents to fall in the near term.
Logistics – New supply improves the city’s warehouse quality

Newly completed warehouses increase total stock. Two new warehouses were completed in 4Q13, increasing total stock by approximately 120,000 sqm. A total of five new warehouses were completed in 2013, two located in the well-established logistics districts of TBNA and Beichen. The other three projects are in Wuqing District, an area that has grown in importance for the logistics sector because of its distance between central Tianjin and Beijing. Jason Wang, Head of Industrial at Jones Lang LaSalle Tianjin, said, “Warehouse tenants are looking to be in locations that can service both Tianjin and Beijing, particularly as Beijing is reducing the land it allocates for warehouses. There are several areas located in the northern suburbs of Tianjin that developers are now focusing on for new warehouses that give their clients the ability to cater to the major cities in the region. Over the course of the next few years, Wuqing, as well as other emerging logistics centers, will be where the bulk of new supply is located.”

Leasing demand continued to be active in 4Q13. Leasing demand continued to be active in 4Q13. However, demand was not able to keep up with the increases in new supply, resulting in the overall vacancy rate going from 18.8% in 3Q13 to 22.9% in 4Q13. For the whole of 2013, net absorption was sluggish, falling significantly compared to the previous three years, despite an increase in demand from e-commerce and retail companies that have been pushed to Tianjin out of Beijing because of the capital’s high occupancy rates. A key reason for the limited demand during 2013 was the economic uncertainties surrounding the manufacturing and heavy industry sectors, which are key drivers of demand in the Tianjin market.

Limited rental growth continues. The overall gross rent remained relatively unchanged at RMB 1 per sqm per day. A contributing factor to the limited rental growth has been the slowdown in demand and the continuous increase in new supply. In addition, with more of the supply located in the city’s emerging logistics submarkets, which have lower rents, there has been downward pressure placed on rental growth.

Strong demand keeps rental growing. Seven more projects are forecast to open in 2014. Another round of new supply increases is expected to continue to put pressure on rental growth; however, strong demand in 2014 is predicted to keep rental growth positive.

Retail – Projects in the traditional shopping catchments continue to reposition

New shopping malls added total stock. Two new shopping malls were completed in 4Q13, bringing the total number of new retail projects opened in 2013 to five. One of the new shopping malls opened during the quarter, Yansha Outlets, is an outlet mall opened by a developer with a successful track record of operating a premium outlet mall in Beijing. The project is located in the Airport Area, which is a new and emerging part of the city. The other shopping mall to open this quarter was We Life Plaza located in Hedong District. We Life Plaza is located atop a Line 2 station and is positioned to serve the community in the immediate vicinity. Together, the two new shopping malls added 188,000 sqm to total stock and were a part of the 382,000 sqm that were completed in 2013.

Demand in the retail market continued unabated. Demand in the retail market continued unabated; however, new supply caused vacancy rates to increase. The vacancy rate grew by 4.7 percentage points q-o-q and 8.8 percentage points y-o-y to 12.4%. In addition, several landlords in the traditional retail catchments, such as Binjiang Avenue and Nanjing Road, have been adjusting their tenant mixes, which further contributed to the rise in the vacancy rate. Sunny Yin, Head of Retail at Jones Lang LaSalle Tianjin, commented, “More middle-end consumers than ever have access to online shopping, which is bringing challenges to those shopping centres targeting the mass market. In addition, more shopping malls are now located near large residential communities, which provide sufficient products covering food, fashion and children’s entertainment. This has made shoppers less willing to travel to traditional shopping areas, such as Binjiang Avenue and Nanjing Road, and has resulted in landlords having to make tenant adjustments if they want to compete in the city’s new retail environment.”

Vacancy rate is expected to slightly increase. In 2014, 800,000 sqm of new supply is forecast to come to the market. All of the new supply is either being developed or will be operated by international companies, which is helping to bring a new flair of expertise to the city. In spite of the new supply, the vacancy rate is expected to only increase slightly, signalling that the Tianjin market is still a place that retailers are looking at to expand.
High-end Residential – Confidence returns to the high-end residential market

Sales in the high-end residential market rose in 4Q13, total units sold of 2013 was down. Sales in the high-end residential market rose in 4Q13, increasing by 10.5% q-o-q and taking total units sold to 1,389. Although the number of total units sold was up for the quarter, for the year the number of total units sold in the market was down 8.7% y-o-y. Causing the demand to fall during 2013 was the home purchase restrictions levied by the government at the beginning of the year. The average sales rate for the year declined approximately 7 percentage points to 57.1%, which is in line with the historical average. 

Developers are gaining more confidence. There were nearly 2,700 newly launched units during 4Q13, bringing the total of newly launched units for 2013 up to 5,479. Thus, half of the units that were launched during the year occurred in 4Q13, signalling that developers are gaining more confidence. The reason for developers renewed optimism in the high-end residential market is due to the rebound in housing price growth and robust demand. Durrell Mack, Head of Research at Jones Lang Salle, stated, “Developers are seeing customers return to the market, and have a renewed faith in high-end housing, with 2013 being a banner year for high residential land transaction prices as well as two projects launching all their units in 4Q13 for prices that are at the top of the market.”

Prices seem to be accelerating. The jump in demand in the latter half of 2013 pushed up the average high-end price to RMB 22,000, an increase of 4.7% y-o-y. The price growth in 2013 more than made up for the negative decline of 1.25% y-o-y in 2012. Housing price increases still have not returned to the rapid growth seen prior to the government’s housing market interventions, but prices now seem to be accelerating. If housing prices rise any faster, the government is expected to implement new policies in order to control price growth. 

The majority of demand will occur along the Haihe. In 2014, housing prices are forecast to continue to rise because of strong demand, new projects in prime locations and the increase in land prices. Heping District is expected to continue to be the most sought after submarket in the city, but the majority of demand will occur along the Haihe, where many of the high-end residential complexes are located.