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According to JLL Tianjin 1Q14 Property Review
JLL's 1Q14 property review revealed the following:
Office – Demand for office picks up again
Leasing activity in the market increased in 1Q14. The rise in net absorption can be attributed to an increase in take-up in both Grade A and Grade B buildings. Lv Weiran, Head of Markets at JLL Tianjin, said, "Demand is increasing in the market, and each quarter more firms are looking to establish a presence in Tianjin, particularly in the Grade A buildings. We expect demand in the city to remain robust as the economy continues to expand."
Driving demand were domestic companies, which accounted for nearly all of the leasing transactions during the quarter. Financial and real estate companies were the main sectors propelling the demand. Compared to the demand from domestic firms, demand from MNCs has been limited in recent quarters. However, as Tianjin has become the number one city for foreign direct investment in China, demand from MNCs should pick up over the next several quarters.
This was the ninth consecutive quarter without any new supply in the Grade A market. However, by the second half of the year, Metropolitan Plaza Tianjin, developed by Hutchison Whampoa, is expected to enter the leasing market. The landlord started pre-leasing during the quarter, with several potential tenants negotiating for space in the building. The project is expected to have a strong leasing performance, as space in the Grade A offices in the Nanjing Road submarket, where the building is located, is limited.
In the Grade B market, R&F Center was completed during the quarter. The building has better specifications than the majority of office towers located in the Xiaobailou submarket, where the R&F Center is located. The high quality and strong strata-titled sales of R&F Center have helped to secure a high pre-commitment rate for the building.
Rents in the overall market remained relatively flat in 1Q14, falling by just 1% q-o-q. The decline in rents was due to the high amount of new supply that entered the Grade B market over the past several quarters. Landlords of Grade B buildings have been lowering rents in an effort to attract more tenants.
In the next 12 months, the Tianjin market is expected to turn increasingly tenant favorable as new supply puts pressure on landlords. However, top performing buildings along Nanjing Road are expected to retain a significant proportion of their tenants and maintain relatively high occupancy rates.Logistics – Investment activity forecast to increase
One built-to-suit project, the 50,000-sqm Goodman E-commerce Logistics Park Phase II, was completed in 1Q14. E-commerce firm, Vipshop, has leased all the space in Phase I and Phase II of this Goodman project. By the end of 2014, more non-bonded projects are expected to be completed. A significant portion of the new supply will be in Xiqing District, which is emerging as an important logistics hub. Beichen District is also expected to have more supply this year and over the long-term. Durrell Mack, Head of Research at JLL Tianjin, commented, "Supply continues to rise in the logistics sector in Tianjin; however, this trend will only continue in the short-term as the amount of land dedicated for logistics space continues to shrink."
More bonded supply is expected this year, but it is likely to face delays, since the manufacturing sector, a key driver of the bonded market in Tianjin, is slowing down. Shipping, another demand driver of the bonded sector, has not had any increased demand this year. Given that demand is likely to be stable and vacancy rates remain relatively high for this segment of the market, the proposed bonded supply through 2015 may not be completed on time.
Demand in the bonded sector has been stable, while non-bonded demand has continued to be active. Prologis signed a built-to-suit agreement for the first phase of its Ninghe project with a logistics company, and Goodman leased 6,000 sqm of at its Beichen project to a logistics company. The demand in the non-bonded market continues to be propelled by the retail, e-commerce and logistics sectors.
Rents and capital values remained flat in the quarter, witnessing only slight increases. However, over the next couple of quarters, a strong surge in investor activity is expected. Jason Wang, Head of Industrial at JLL Tianjin, said, "Tianjin is an attractive place for investors because of its close proximity to Beijing, and Tianjin has yet to reduce the sale of its logistic sector plots to the low levels of Beijing. These enticing features will help to attract the recent foreign capital that has been pouring into the country from private equity funds, such as Blackstone, Sam Zell's Equity International and Carlyle Group, specifically for the purpose of investing in the logistics market."Retail – The quality of shopping malls continues to improve
During 1Q14, Aeon Shopping Center (Meijiang) opened, adding 91,000 sqm to the market. The shopping mall is located in the Meijiang area, a high-end residential catchment that has few prime retail offerings. The shopping center, which features brands such as Uniqlo and H&M, as well as a supermarket, cinema and two large F&B sections, is expected to be well received by the surrounding community. Sunny Yin, Head of Retail at JLL Tianjin, pointed out, "The opening of Aeon Shopping Center (Meijiang) is a continuation of a trend of shopping malls opening outside the traditional shopping areas. This trend is expected to continue, because many areas of Tianjin are under retailed."
Hanter Department Store opened during the quarter. The department store is located at the base of The Mansion of Triumphal Arch in Xiaobailou and was recently purchased by Bonzon Group and refurbished. The project now features F&B on the top floor and mid-range apparel brands. Hanter Department Store is expected to complement the retail projects already in the area.
Net absorption slowed in the market in 1Q14, declining 69% q-o-q. However, the vacancy rate remained relatively stable despite increases in new supply, witnessing an uptick to 12.5% in 1Q14 from 12.4% in 4Q13. One reason for the decline in net absorption is that the department stores located in the core retail submarkets are undergoing repositioning. With the emergence of online shopping and the construction of more shopping malls, department stores are struggling to attract shoppers, and are switching brands in an effort to entice customers to return.
Although net absorption slowed in 1Q14, it is expected to pick up in the latter half of the year, when some highly anticipated malls are expected to open. Among the malls expected to open in 2014 are Riverside 66, Metropolitan Plaza Tianjin and Kerry Center Phase I. Each of these shopping malls is predicted to bring new brands to market and enhance the overall shopping environment of Tianjin. In total, another half million sqm of retail space is expected to enter the market by the end of 2014. With the space distributed evenly across the city, vacancy rates are forecast to only increase by approximately 2 percentage points. High-end Residential – Transaction volumes fall in 1Q14
Demand for high-end housing declined 48.3% q-o-q in 1Q14 to 718 units sold. Several factors were behind the fall in transaction volumes. The first was the Chinese New Year holiday, a time when transaction volumes generally decrease. The other factors have to do with uncertainty about future housing policies and access to credit. There are rumors that the government is planning to relax some housing policy restrictions, which has caused some homebuyers to take a wait-and-see attitude toward the market.
Although demand in the market fell, housing prices remained stable, increasing less than 1% q-o-q. Helping keep prices high are the strong balance sheets of developers operating in the market. High-end home prices have been resilient in the Tianjin market for the past several quarters, despite declining demand.
No new projects were launched in 1Q14. With homebuyers waiting on the sidelines, developers decided to delay projects until market conditions improve. This was the first quarter since 2010 that there were no newly launched units in the market. However, this trend is not expected to continue. Over the next several quarters, the government's position on the housing market should become clear, causing demand to rise. Once demand returns, developers will launch more units.
Michael Hart, Managing Director at JLL Tianjin, stated, "Tianjin continues to have one of the most vibrant economies in the country and with the city planned to have better integration with neighbors, Tianjin's economy is predicted to have even stronger growth. The economic fortunes of the city have caused incomes to rise and this has resulted in more demand for housing." In the second half of 2014, demand is predicted to pick up, causing housing prices to continue on a steady upward trend.
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