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News Release

Tianjin

JLL 2016 3rd Quarter Tianjin Property Review

High-end residential prices rose by double-digits for the third consecutive quarter; Warehouses see strong demand in northern Tianjin


​​TIANJIN, October 21st, 2016 – JLL’s 3Q16 property review revealed the following:

  • Two new Grade A office buildings completed in core areas, intensifying competition for landlords
  • Robust demand from retail and e-commerce drove warehouse leasing
  • Shopping malls are turning​ to experience-oriented tenants focusing on entertainment and services
  • High-end residential capital values sustained their uptrend, driven by upgrade demand from local owner-occupiers
 

Office

Two more Grade A buildings completed in 3Q16, adding a combined 175,000 sqm and bringing total Grade A stock to about 779,000 sqm, an increase of 29.1% q-o-q and 40.4% y-o-y. The two completions, Modern City (135,000 sqm) and Vantone Center (40,000 sqm), each completed in Nanjing Road – Xiaobailou submarket, adding further pressure to established Grade A projects in the submarket. Grade A vacancy reached a new record high, 51.1%, increasing 9.1 pps q-o-q and 6.8 percentage points y-o-y due to the new completions. No Grade B projects completed in the quarter, enabling the Grade B vacancy rate to decrease slightly, 0.5 percentage points q-o-q, to 34.0%.

Relocation demand accounted for more than 60% of the quarterly leasing volume as large-sized tenants upgraded into new completions. For example, Fang.com relocated from The Exchange Tower 2 and two other buildings to consolidate into Modern City, leasing 3 floors or 7,100 sqm. Additionally, Huawei leased 3,200 sqm in Vantone Center and is relocating from the Tianjin World Financial Center. In contrast, new set-up leasing demand has slowed considerably, down 73.9% from last year, given broad regulation of the wealth management and peer-to-peer lending industries. Instead, new set-up demand came predominantly from real estate developers and small-sized professional services firms catering to education or travel. Grade A net-absorption stood at 31,100 sqm in 3Q16, an increase of 41.7% q-o-q but decrease of 18.7% y-o-y, as lower rental values and higher quality space continues to attract relocation demand. Grade B net absorption declined to 8,739 sqm, a 92.3% decrease from 2Q16. While some higher quality, wholly-owned Grade B buildings were also able to attract demand from upgraders, this was offset by an exodus of tenants leaving old, strata-title Grade B buildings.

Rents in the Grade A market continued their steep decline, decreasing 3.3% q-o-q and 6.0% y-o-y to RMB 107 per sqm per month. The lack of new set-up demand has also forced Grade A landlords to compete for a limited number of existing tenants who wish to relocate, causing them to successively bid down their asking rents. Additionally, landlords in established Grade A projects in Nanjing Road – Xiaobailou submarket have lowered their rents to stay competitive with the new completions to retain existing tenants. Grade B rents declined at a slower pace, down 0.9% q-o-q and 2.3% y-o-y to RMB 89 per sqm per month.

Capital values declined 2.5% q-o-q and 0.2% q-o-q in the Grade A and Grade B market, respectively. Grade A capital values largely fell in line with rents, though Grade B capital values fell at a slower pace. While wholly-owned Grade B projects capital values decline in line with their Grade A counterparts, strata-title Grade B projects were still able to increase or maintain price levels from last quarter given demand from individual investors spilling over from the residential market. Overall market yields, as such, declined slightly, down 10 bps to 5.7% by end-3Q16.

Lv Weiran, JLL Tianjin Head of Markets, commented, “The high market vacancy resulting from new completions, coupled with declining new set-up demand, has caused landlords to aggressively lower rents as they compete for relocating tenants. Once the dust settles, we anticipate wholly-owned projects that are well managed to reach high occupancy levels while other projects may end up empty and distressed.”


Logistics

Logistics demand continued to be robust, leading net absorption to reach 212,648 sqm, double the net absorption in 2Q16 and almost five times greater than in 3Q15. Demand was driven by the retail, 3PLs and e-commerce sectors. Retailers sought warehouse space where adjacent to city center and expressways to be closer to consumers in the city. For example, Wumart, a supermarket brand leased 10,000 sqm in Vailog Xiqing Logistics Park and a dairy company leased 20,000 sqm in GLP Park Beichen Phase I. Transactions from e-commerce, retailers and 3PL firms were active in the Wuqing submarket due to its connection to Beijing, Tianjin and Hebei. One notable transaction during the quarter was Sinotrans, a logistics company leasing 30,000 sqm in Mapletree Tianjin Wuqing Logistics Park.

One new project entered the market in 3Q16 with a 100% commitment-rate – Mapletree Tianjin Wuqing Logistics Park, adding 30,000 sqm of space into the non-bonded market. By 3Q16, the market total stock stood at 3.3 million sqm. The vacancy rate of the non-bonded market declined to 19.0%, a decrease of 7.5 percentage points q-o-q and 3.5 percentage points y-o-y. 

Net effective rents reached RMB 0.91 per sqm per day, a decrease of 0.3% q-o-q but an increase of 0.9% y-o-y on a like-for-like basis. Rental movement this quarter varied by submarket. Projects in non-prime locations, such as southern Xiqing and Lingang area in TBNA, saw rentals decline as they absorb space. However, submarkets with tight vacancy rates, like Wuqing, continued to see rental growth.

Looking forward, two new logistics projects will enter the market, adding about 108,000 sqm of warehouse space. “The rapid growth online shopping and a double-digit retail sales increase are expected to support the momentum of robust demand from retailers and e-commerce players,” noted Michael Hart, Managing Director of JLL Tianjin. “As Wuqing District has limited available leasing space, we expect Beichen and Ninghe to see spillover demand.”


Retail

Demand slowed during the quarter and resulted in net absorption standing at 30,527 sqm, a decrease of 58.3% q-o-q and 21.8% y-o-y. Shopping malls are becoming more experience oriented. The F&B, entertainment and services sectors were the main drivers of demand in 3Q16. Several new restaurants entered in Joy City, such as Play King, a pizza house that leased 200 sqm of space. Notable leases from the entertainment and services sectors were Changba KTV, which leased 3,000 sqm in CapitaMall, iCooking Club leased about 300 sqm in Riverview Place and P.style Hair Salon opened its first 500-sqm store in Riverside 66.

As one shopping mall, Global Mall Tianjin, delayed its opening date to next year, no new projects entered the market in 3Q16, keeping total stock at 3.1 million sqm. Several shopping malls, such as We Life Plaza, are undergoing repositioning, resulting in negative absorption temporarily. The slow increase in demand and no new supply resulted in the vacancy rate declining slightly to 14.3%, a decrease of 0.9 pps q-o-q and 2.4 pps y-o-y.

Net effective rents declined to RMB 11.3 per sqm per day (based on NLA), a decrease of 0.6% q-o-q and 1.8% y-o-y in 3Q16. Shopping malls with a relatively high vacancy rate, such as Metropolitan Plaza Tianjin and Galaxy International Shopping Centre, lowered their rents to attract tenants to take up the empty space.

By end-2016, three new malls are expected to enter the market, adding 185,000 sqm to the market. We forecast Heping Joy City and more two shopping malls, InCity and SM City Phase I, will open in 4Q16, leading to increased competition in both core and decentralized areas. Sunny Yin, Head of Retail for JLL Tianjin, commented, “Facing the pressure from growing new supply, it expects to take longer for newer projects to mature and achieve high foot traffic and an attractive tenant mix. During this period, landlords will not be in a hurry to increase rents. Therefore, we forecast market rental growth on a like-for-like basis would decelerate by end-2016.


High-end Residential

3Q16 high-end sales volume remained strong at 2,681 units, declining 21.8% q-o-q and 2.3% y-o-y. The sales market continued to be driven by upgrading demand from local owner-occupiers, rather than by speculators.  We are still seeing the impact of the loosening policies, including cuts in the mortgage rate and down payment ratio, in late 2015.

2,100 units were launched in 3Q16, a decrease of 30.9% q-o-q and 27.9% y-o-y, due to the abnormally large figure last quarter. Most of the new supply launched in three submarkets – Meijiang, Haihe Riverside, and New Badali. CITIC City Plaza, located alongside the Haihe River, launched 426 high-rise units in its second phase and sold 311 of them at an average price of RMB 41,649 per sqm. Additionally, projects with below average sales prices were able to achieve extraordinary sales rates. Vanke Dongdi, in Meijiang, for example, launched 260 high-rise units this quarter, selling 256 at RMB 25,010 per sqm, over 30% lower than the Meijiang submarket average as it is located in a relatively distant part of Meijiang area, with weaker amenities compared to most high-end projects.

Primary high-end residential capital values rose another 10.0% q-o-q to RMB 34,901 per sqm, surging 40.3% from last year. Buyers again rushed to the market, allowing existing projects quickly sellout and push prices even higher. The recent tightening measures issued by the local government have yet to impact the sales market. The rental market remained largely unchanged, only rising 0.3% q-o-q, given the lack of senior level executive rental demand and strong familial preference to buy instead of rent. As such, yields dropped further to 1.9%, a 10 basis points decline from 2Q16.

Chelsea Cai, JLL Tianjin’s Head of Research, remarked, “There are fewer places to park cash than ever before. Risks in domestic financial products, tightening on outbound investment, and the persistent easy domestic mortgage policy has created a “perfect storm” for the rise in home prices. The Tianjin municipal government recently released a series of new policies aimed at curbing home prices by restricting purchases from non-Tianjin residents. They are unlikely to have an immediate impact, however, as they do not focus on the key source of demand – local Tianjin residents – and tightening policies historically have a lagging effect on the market.” 

​– ends –​​

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About JLL

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 $59.1 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​​​​