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Logistics leasing demand increasingly reliant on e-commerce and 3PL tenants; High-end residential prices skyrocketed for the second consecutive quarter
TIANJIN, July 28th, 2016 – JLL’s 2Q16 property review revealed the following:
Total net absorption was 65,000 sqm in 2Q16 and after adjusting for self-use completions, net absorption remained stable, falling just 0.7% q-o-q. Leasing demand is still largely coming from the finance sector, however, at a slower pace than before as many asset managers and P2P lending companies found it more difficult to obtain the necessary permits while existing firms closed altogether due to bankruptcy or regulation. Instead, finance demand was driven by insurance companies or established securities brokers. For example, CITIC securities leased over 500 sqm in Sunwah IFC (Xinhua IFC), a Grade A project that entered in 3Q15. Upgrading also remains another significant source of demand as higher quality space comes onto the market. McDonalds, which previously located operations in an old, Grade C project, relocated 1,800 sqm into Maoye Plaza, a recent Grade B completion.
Four Grade B projects entered the market this quarter, adding a total of 249,000 sqm. However, only one project, Maoye Plaza, which added over 80,000 sqm to the Haihe Riverside submarket, will directly enter the leasing market. Two of the projects, Financial Street Heping Center and Sino Ocean International Building, will forego the leasing market and sell strata-title instead. Lastly, Diamond Hill, which added 20,850 sqm is a self-use project for North China Municipal Engineering Design & Research Co. The Grade B market saw a sharp increase in its vacancy rate, up 6.9 percentage points q-o-q, to 34.5%. While one project completed for self-use, the other three completions entered the market with low pre-leasing rate. With no new Grade A completions this quarter, the Grade A vacancy rate fell 2.0 percentage points q-o-q to 42.0%. The Grade A vacancy rate, however, still rose 8.7 percentage points y-o-y due to three new Grade A projects entering the market within the last year.
Rents in the Grade A market fell 1.6% q-o-q and 2.9% y-o-y to RMB 114 per sqm per month. Grade A landlords in new projects with high vacancy rates were aggressive to lower their rents to fill space ahead of large supply wave where three more Grade A projects, totalling 220,000 sqm, expect to complete by end-2016. Additionally, with the slowdown of the domestic financial sector, particularly P2P lending companies, landlords were forced to pursue tenants from sectors of lower rental affordability, like trade and logistics, which brought down the rental average. Grade B rents stayed mostly flat however, falling only 0.3% q-o-q to RMB 89 per sqm per day. The new completions had little effect on Grade B rents as most will not enter the leasing market. While there remains limited interest and tradable stock for en-bloc sales, the strata-title market showed signs of improvement.
Lv Weiran, Head of Markets at JLL Tianjin, commented, “We are continuing to see an increasingly competitive environment with so many large-sized projects coming onto market. This has put existing landlords in a difficult position, especially as new completions ask for rents well below the market average. Projects with sufficient capital and a long-term vision will likely focus on securing high quality tenants while sacrificing rental income in the near-term.”
2Q16 net absorption into Tianjin’s non-bonded warehouse market reached about 105,000 sqm, four times greater than the net absorption in 1Q16. 30% of the net absorption figure went into new completions. Robust demand was seen in the E-commerce, 3PLs, and retail sectors, particularly into the Northern districts of Tianjin like Wuqing, Ninghe, and Beichen, which locate alongside the Jingjin & Jingjintang Expressway and easy to connect to Beijing and Hebei. The most notable transaction this quarter was a 3PL company serviced for Samsung which leased 27,000 sqm in GLP Park Ninghe Phase I.
Three new warehouses were completed in 2Q16 - GLP Ninghe Phase I, Vailog Xiqing Logistics Park and GLP Park Jinnan. The vacancy rate of non-bonded market stood at 26.5%, an increase of 2.2 percentage points q-o-q and 5.5 percentage points y-o-y. However, we saw the vacancy in Wuqing fall to 10.0%, a 4.0 percentage points decrease q-o-q and 2.0 percentage points decrease y-o-y.
Net effective rents reached 0.91per sqm per day, an increase of 0.7% q-o-q and 1.4% y-o-y. The increase was led by projects that completed in Wuqing District, which has seen the greatest demand and decreasing vacancy rates.
Looking forward, five new logistics projects will enter the market, adding another 260,000 sqm of warehouse space. “As the logistics market in Beijing remains tight,” Michael Hart, Managing Director of JLL Tianjin noted, “we forecast that Wuqing will continue to see spillover demand, giving landlords more negotiating power over rents. As space in Wuqing fills up, we expect the overflow demand to carry over to Beichen surrounding regions shortly. Much like Wuqing, these areas also boast convenient access to transportation, particularly for distribution centers.”
Demand was stable in 2Q16 and was mostly driven by fashion, F&B, and service brands, especially fitness and education companies. Net absorption was recorded at 73,000 sqm, while new completions contributed around 60.0% of this figure. One notable lease was Apple, which opened their third store this quarter in Galaxy International Shopping Centre with a total GFA of 1,200 sqm. One jewellery brand, APM Monaco, also leased 180 sqm in Riverside 66 after it opened its first store in Joy City.
Two new shopping malls, Metropolitan developed by Hutchinson and M Plaza developed by a local player, were completed in 2Q16, adding 93,000 sqm to the market. The overall market vacancy rate stood at 15.2% by the end of 2Q16, a 1.7 percentage point decrease from 1Q16.
Net effective rents rose to 11.4 per sqm per day (based on NLA), an increase of 0.5% q-o-q and 3.3% y-o-y in 2Q16.
Four more shopping malls expect to enter the market end-2016, and will add 275,000 sqm to the market. Heping Joy City, located in the core retail area, will replace the former Exchange Mall developed by GIC and HKR as it undergoes conversion into a new shopping mall. The other three shopping malls will be located outside the core areas, and will serve as community malls or resorts. Sunny Yin, Head of Retail for JLL Tianjin commented, “As more community malls cater to high-density residential neighbourhoods, we will see more consumers limit their choices to one or two key destination malls. F&B, supermarkets, and service companies will be critical in driving leasing demand into these community malls.”
Housing demand was still largely driven by loose policy measures released in late 2015, which included greater access to the public housing fund which brought more first and second time purchasers to the market. This led to upgrade demand from existing home owners able to their properties at a premium and then “trade up” into the new high-end completions. Additionally, uncertainty in other financial markets has led many domestic investors back to the residential market. Sales volume in the high-end residential market was again very strong, increasing to 3,429 units, up 26.7% q-o-q. Unsold inventory also declined 18.1% q-o-q to 1,766 units as projects were able to destock inventory on the back of strong demand.
3,040 new units were launched in 2Q16, the highest quarterly total in the last 3 years. This was largely due to New Badali – a new residential development area featuring five projects – which launched 1,522 units this quarter, accounting for over 50.0% of the total. Gediao and Beida Resources’ New Badali projects launched a combined 1,378 units, selling 806 units. The second most active submarket was Meijiang, where Greentown and Sunac’s National Games’ Village launched 607 units and sold 781 units.
Capital values in the high-end residential market continued to rise at a rapid pace in 2Q16, increasing 14.6% q-o-q and 29.4% y-o-y. High sales rates and little primary stock available in the core districts (particularly in Heping, Hexi, and Nankai) continued to give developers the ability to significantly raise prices. Rental values also increased, but only slightly, up 0.3% q-o-q and 1.1% y-o-y, as interest from non-local, high income white collars – the key driver for the rental market – is limited.
Chelsea Cai, Head of Research for JLL Tianjin commented, “While other Tier 1 cities have already introduced cooling measures to prevent their housing market from overheating, Tianjin has remained hesitant to do so. However, we still think the local government will pursue tightening measures in the coming quarters to alleviate housing affordability concerns in the central districts. Combined with already high prices, tightening measures will cause prospective buyers to be more cautious in 2H16 and we expect CV’s to grow at a slower pace.”
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JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, www.jll.com.
JLL has over 50 years of experience in Asia Pacific, with over 34,000 employees operating in 92 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards. www.jll.com/asiapacific
In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2016, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country. www.joneslanglasalle.com.cn
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