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News Release

Tianjin

JLL: Market activity slows in Central Tianjin

According to JLL Tianjin 2Q14 Property Review


Tianjin, 15 July  2014 – JLL's 2Q14 property review revealed the following:

  • Office – Supply and demand remain in equilibrium
  • Logistics – Bonded demand slowing
  • Retail – Retail projects reposition to stay competitive
  • High-end residential – Prices remain stable

Office – New supply keeps rents flat

Leasing demand remained robust as domestic service sector firms continued to be active in the market. Financial and real estate firms have been the most active in the market for several quarters. For example, two of the largest leasing transactions in 2Q14 were by two subsidiaries of Taikang Insurance, which together leased more than 3,000 sqm in Tianjin World Financial Center, and Zhenro Real Estate, which leased 1,500 sqm in Golden Valley.

With Tianjin World Financial Center experiencing strong demand in the quarter, the overall vacancy rate in the Grade A market fell 2.6 percentage points to 11.9% in 2Q14. The Grade B vacancy rate remained relatively stable at 24.3%, despite completion of four Grade B buildings during the quarter. Michael Hart, Managing Director at JLL Tianjin, said, "Although vacancy rates appear high, at present there is little quality space in which MNCs can expand; Tianjin still needs better quality buildings operated by experienced professionals. The opening of Metropolitan Tower Tianjin in the second half of this year will improve the overall quality of Tianjin's office market."

No new Grade A buildings completed in 2Q14; however, four Grade B office towers were launched in the Grade B market. The four new Grade B buildings increased total Grade B stock by approximately 100,000 sqm to more than 1.1 million sqm (GFA). Total stock in the Grade A market remained stable at 300,000 sqm (GFA).

Supply and demand remained in equilibrium during the quarter, causing rents to stay flat. Lv Weiran, Head of Markets at JLL Tianjin, commented, "Landlords have had difficulty raising rents, despite the high level of demand in the market. Future supply increases will turn Tianjin into a tenant favorable market."

Logistics – Leasing market relatively quiet

One non-bonded warehouse, GLP Park Tianjin Puling, was completed in 2Q14. The project is around 50,000 sqm and is located in Xingqing District. Global Logistics Properties, which has the most warehouse space of any international developer in Tianjin, developed the warehouse. With the completion of GLP Park Tianjin Puling, total stock is now close to 1.4 million sqm in the non-bonded market. The bonded market remained unchanged at 740,000 sqm, as no new bonded supply was completed in 2Q14.

Demand slowed in 2Q14, particularly in the bonded market, as industrial and port activities have been slow. The non-bonded market saw few major transactions occur in the quarter. The largest transaction was the lease of 23,000 sqm by Leyou, a baby and maternity products retailer, at Goodman Beichen Landport Logistics Estate in Beichen District. The majority of non-bonded demand continues to come from retailers, logistics and e-commerce firms, especially companies that want to service the Beijing market. With logistics space limited in Beijing, more companies are coming to Tianjin for their warehouse needs.

Rents and capital values experienced slight growth in 2Q14. Rental growth was mainly driven by the more established warehouse developers, such as Global Logistics Properties, raising their rents, while capital values have increased because of the rising costs of land and more international and domestic investors looking for opportunities in the market. Jason Wang, Head of Industrial at JLL Tianjin, pointed out, "Investment activity and leasing demand are rising in Tianjin, particularly as supply continues to be tight in Beijing. We expect market activity to be strong in the second half of the year."

Retail – Department stores and shopping malls reposition

Competition in the retail market is intensifying, causing many landlords to seek a brand mix that will attract shoppers. Nearly all the department stores and shopping malls along Binjiang Avenue and Heping Road are undergoing repositioning and tenant upgrades to find the remix of brands that will help increase footfall and sales. With Riverside 66, developed by Hang Lung Properties, expected to open in the second half of 2014 and bring new brands to the market, shopping malls and department stores in Tianjin's core retail area are looking for ways to differentiate themselves and attract shoppers.

No new supply was completed in 2Q14, but vacancy rates increased, as many shopping malls and department stores across the market began to reposition and upgrade. In addition, demand from many fast fashion and fashion brands slowed during the quarter. Sunny Yin, Head of Retail at JLL Tianjin, commented, "Several fast fashion and fashion brands currently in the Tianjin market are planning to slow their store expansions because their performances have been less than ideal. However, F&B and children's retailers are still active in the market and will be the main drivers of leasing demand going forward."

Despite an increase in vacancy rates, overall ground floor rents increased slightly by 2% q-o-q to RMB 11.9 per sqm per day. Propelling rents upward were shopping malls along Nanjing Road and in the non-traditional retail areas.

High-end residential – Homebuyers still waiting on the sidelines

In 2Q14, two high-end residential projects, Legendary Achievements and New Park Residence, launched new units in the pre-sale market. Legendary Achievements is located in Nankai District, not far from Nanjing Road, and New Park Residence is located in the Meijiang Area. Together, the two projects have sold more than 70 units, which is relatively low considering the projects' locations and the developers' reputations in the market.

Although high-end residential transaction volumes remained stable quarter-on-quarter, growing 2.9% q-o-q, transaction volumes were still negative year-on-year, falling 27.2% y-o-y in 2Q14. The reason for the lackluster performance in the high-end residential market is that many homebuyers are taking a wait-and-see approach to the market. Homebuyers are expecting residential developers to start reducing home prices in central Tianjin as they have begun to do in other cities in China. Durrell Mack, Head of Research at JLL Tianjin, stated, "Compared to this time last year, 2014 transaction volumes in central Tianjin are half those of 2013. If developers want to quickly increase transaction volumes, they are going to need to reduce prices."

In the second half of the year, high-end residential prices are forecast to decline as developers looking to increase their cash flows begin to lower their prices. However, as prices begin to fall, transaction volumes in the market are expected to increase. High-end residential prices are anticipated to decline between 3% and 5% over the next two years.