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News Release

Tianjin

Large space of high-quality warehouses entered Tianjin; new supportive measures in housing market will help boost upgrader demand

According to JLL Tianjin’s 1Q15 Property Review


Tianjin, April 22, 2015 – JLL's 1Q15 property review revealed the following:

  • Leasing demand is mainly from domestic firms seeking high quality office space for upgrading
  • Retailers and e-commerce firms are still the main drivers of warehouse demand
  • Apple store made a debut in Tianjin
  • New supportive measures by PBOC will help boost homes sales in the next couples of months

Office

Demand in both the Grade A and Grade B office markets decelerated in 1Q15 due to the overall Chinese economy slowing and the Chinese New Year holiday. Domestic financial firms were still the main drivers of demand in the leasing market. Enquiries from wealth management firms kept stable, and enquiries from other sectors, such as IT and professional services, began to rise. Among all Grade A office buildings, Metropolitan Tower Tianjin had the highest number of leasing transactions, surpassing Tianjin World Financial Centre (TWFC). The quarter's notable leasing transactions were Bohai Water Industry Co Ltd leasing 1,819 sqm in Meijiang Centre Plaza and Tianjin Municipal Highway Administration Bureau, which leased 1,400 sqm in the TWFC.

No new supply entered the market in 1Q15. In 2Q15, five new Grade B buildings are expected to enter the market, taking the vacancy rate higher. At the same time, landlords at a few Grade B office buildings, such as North Finance Tower and Tianjin City Tower, began to renovate their buildings to retain tenants.

Rents and capital values remain unchanged because demand has decelerated. In 1Q15, average gross rents in the overall market stood at RMB 4.1 per sqm per day.

Despite demand beginning to soften, a large number of new buildings are expected to enter the market by the end of 2015 that will take tenants away from the existing buildings. Lv Weiran, Head of Markets in JLL Tianjin, said, "2015 will be a year when the market is increasingly favourable to tenants. Due to the several high quality buildings entering the market; we expect to see more demand from tenants seeking to upgrade their office space."

Logistics

Six non-bonded warehouses - totalling approximately 510,000 sqm – completed and entered the market in 1Q15. The majority of the new projects are located in the Wuqing Jingbin submarket, which is maturing, mainly due to its strategic location between Beijing and Tianjin, and has attracted several international developers to invest in the area. The large quantity of new supply delivered in 1Q15 resulted in two projects being delayed until 2Q15.

Demand was stronger in 1Q15 than in 4Q14. Similar to previous quarters, the main demand still came from retailers and e-commerce firms. JD.com expanded its warehouse and leased about 180,000 sqm in the Wuqing Jingbin sub-market. However, since a large amount of new supply entered the market and two warehouses have no tenants, the overall non-bonded vacancy rate rose by about 6 percentage points q-o-q.

Non-bonded market rents declined slightly. The main reason for the decline is that JD.com leased the entire space in two warehouses and was able to negotiate well below market rents. In addition, the other new projects that entered the market this quarter had rental levels below the market average because they are located in the emerging areas. As a result, non-bonded warehouse rents declined slightly. Rents of the bonded market remained stable as there has been little activity in this segment of the warehouse market.

Demand rises in line with the healthy increase of supply. In the remainder of 2015, another nine non-bonded warehouses are expected to complete as demand remains strong in the market. Michael Hart, Managing Director at JLL Tianjin, pointed out, "The traffic control policies that do not allow trucks within the Outer Ring Road from 7am to 7 pm have be implemented for one year. It is becoming clear that the upgrader demand coming from the old warehouses within the Outer Ring Road will gradually transfer to high-quality warehouse space located on the fringes of the city." In addition to upgrader demand, retailers, e-commerce and third party logistics firms are expected to remain the key drivers for future demand.

Retail  

A new shopping mall opened in Wuqing District. Despite three department stores closing because of poor performance, one new shopping mall, Veneto, opened next to Florentia Village. Veneto has a retail space of 78,000 sqm and is located in Wuqing District, far away from central Tianjin. Veneto opened with a high vacancy rate because Florentia Village still has space to lease and it is a popular retail destination for both locals and tourists. However, because of the convenient transportation network near the Wuqing Expressway and Veneto's positioning and brand mix, which focuses on food and beverage (F&B) and kids', the project is expected to lease more space and attract more shoppers throughout the rest of this year.

Demand in Tianjin is divided. For well-performing shopping malls, demand increased. The Apple store entered the Tianjin market by opening on the first floor of Joy City, which is one of the most popular shopping malls in central Tianjin. Sunny Yin, Head of Retail at JLL Tianjin, commented, "clear positioning, unique brand mix and active online promotions are some of the success factors of shopping malls like Joy City; these drivers are also factors that other projects could learn and use for reference." However, some projects are losing tenants because of their poor location, lack of repositioning and outdated operation. Overall demand still comes from F&B, kids' and entertainment brands. Recently, more diversified retailers, such as theme parks, hair salons, photo studios and home museums, are entering retail projects, especially shopping malls.

With stable demand in the overall Tianjin market, rents remained flat, witnessing only a 0.9% decrease q-o-q. Newly completed Veneto entering the market with lower than average rents in the quarter is the main factor for the change in market rents. In line with the demand, rental performances were distinguished between well-performing and poor performing projects. Landlords of well-performing shopping malls with sustained demand retained the power to increase their rents, while landlords at other projects had to drop their rents to stop tenants from moving out.

High-end Residential

In the first quarter of the year, sales volumes dropped in both the mass market and high-end residential market because of the traditional Chinese New Year holiday. A total of 837 units were transacted in the high-end residential market in 1Q15; 50% of the total transactions were contributed by projects launched last year and located in the non-traditional submarket. For example, Tianfang Tiantuo and Sunac Center sold 204 units, accounting for 25% of total transaction volumes. These projects are located in Nankai District, close to west ring road.

Developers were still trying to clear their inventories, thus most did not launch any new units into the mark in 1Q15, as demand slowed in the high-end residential market. Only one project, Lane No. 9 developed by China Overseas in New Badali area, Hexi District, launched units, with 488 new units coming to the market. The units transacted at RMB 24,500 per sqm, 5% higher than average market price, which stood at RMB 23,391 per sqm.

On March 30, 2015, the PBOC announced new supportive measures for the China housing market. The new measures mainly include tax deductions and lower down payments for second homebuyers. As a result, both transaction volumes and capital values are expected to experience a recovery in the next few months. Looking ahead to 2015, Durrell Mack, Head of Research at JLL Tianjin, stated, "As expanding metro lines make living in Tianjin more convenient, we expect people will relocate and live further outside central Tianjin. Meanwhile, more upgrader demand, which was restricted last year, will be boosted by more supportive housing policies and help clear current inventories."