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According to JLL Tianjin's 1Q17 Property Review
Tianjin, 17 April 2017 – JLL's 1Q17 property review revealed the following:
Total net absorption was 49,000 sqm in 1Q17, an increase of 94.2% q-o-q and a decrease of 63.8% y-o-y.
There was strong demand in the first quarter as tenants moved into buildings that were completed in 2016 such as Vantone Center and Yanlord Riverside Plaza. Nearly half (43%) of the total net absorption in the quarter was in Grade A stock. Leasing demand of Grade A came mainly from the real estate and finance sectors. For example, Hong Kun Wei Ye, a domestic real estate developer, leased 700 sqm in Tianjin World Financial Centre, and Rong Tai Real Estate Company, another domestic real estate developer, leased 870 sqm in Yanlord Riverside Plaza. One of the most notable leasing transaction in finance sector was Home Credit, a MNC's consumer finance company, leased another 2,400 sqm for expansion in Modern City Office Tower.
No new supply entered the market in 1Q17 and total stock remained unchanged at 2.7 million sqm. Due to the positive net absorption and no new completions in the office market, vacancy rates in both Grade A and Grade B projects declined slightly. The Grade A vacancy rate declined 2.5 percentage points q-o-q to 49.8% and the Grade B rate fell 1.5 of a percentage point q-o-q to 31.7%.
Net effective rents continued to decline, falling 0.6% q-o-q and 4.4% y-o-y, to RMB 93 per sqm per month. Grade A rents fell 0.7% q-o-q and 10.6% y-o-y to RMB 104 per sqm per month. The sustained high vacancy rate in the Grade A market caused landlords to lower rents to absorb vacant space. Grade B rents declined 0.6% q-o-q and 2.3% y-o-y to RMB 88 per sqm per month.
Another eight projects are expected to complete in 2017, which will add 481,000 sqm and push the overall vacancy rate up by end-2017. "While two new Grade A buildings that are located outside the traditional business area will enter the market, the largest contributors to the Grade A demand will be the newer, centrally located Grade A projects, such as Vantone Center and Yanlord Riverside Plaza," noted Lv Weiran, Head of Markets for JLL Tianjin.
In 1Q17, there was a negative net absorption of space (of 58,000 sqm) as lease expirations combined with a slowdown in new set up to create more empty space in Tianjin's warehouses. The main demand drivers of the market were 3PLs. Two examples were FineEx.com, a domestic 3PL company, leasing 20,000 sqm in GLP Park Beichen Phase I, and DTW Logistics leasing 6,000 sqm in GLP Park Tianjin Puling and Pujin Phase I.
While no new supply entered the market in 1Q17, the non-bonded vacancy rate grew 2.3 percentage points q-o-q and declined 2.4 percentage points y-o-y to 21.9%. The lease expirations and the limited leasing transactions this quarter drove the vacancy rate in the Wuqing submarket up 5.8 percentage points q-o-q and down 5.9 percentage points y-o-y to 8.1%.
Net effective rents reached RMB 0.91 per sqm per day, an increase of 0.3% q-o-q, and 1.0% y-o-y on a like-for-like basis. Rental movement this quarter varied by submarket with those with relatively low vacancy rates and strong demand, such as Beichen, continuing to see rental growth. However, this growth was offset by submarkets with high vacancy rates, such as Jinnan, which saw landlords reducing rents to attract tenants.
Michael Hart, Managing Director of JLL Tianjin commented, "The logistics market is one of Tianjin's bright spots, despite the fact that we expect to see seven new logistics projects (including five expansions of current projects) completed in 2017, we expect the vacancy rate will decline slightly by year end. We expect strong leasing demand to continue from both 3PLs and retailers located in the greater Beijing area."
Leasing demand increased at a slower pace in 1Q17, with net absorption at 88,000 sqm, a decrease of 37.0% q-o-q and 48.0% y-o-y. New leasing continued to come mainly from F&B and the children-related sectors. F&B retailers prefer to open in the core retail area when they first enter Tianjin, whereas children-related operators focus on community malls that cater to families in non-core areas. For example, Roast Fish and several Chinese cuisine restaurants from Beijing leased space in Heping Joy City for their first outlets in Tianjin. My Gym leased about 800 sqm of space and Helen Doron English leased about 500 sqm in InCity Mall, located in the Meijiang area. Many fashion retailers slowed down their expansion although Me & City and Urban Revivo were still opening new outlets.
Global Mall Tianjin opened in the non-core area, Zhongbeizhen, adding 90,000 sqm of shopping space and was the only new high-quality shopping mall of 1Q17. It entered the market as a community mall with a large proportion of its space delegated to the F&B, entertainment and service retailers that contributed 36.0% of net absorption in the quarter. With high absorption in other community malls such as InCity Mall and Delight City, the market vacancy rate saw a decline of 0.2 percentage point q-o-q and 2.3 percentage points y-o-y to 14.6%.
Along with the moderate leasing increase in this quarter, rents remained little changed. Net effective rents reached RMB 11.2 per sqm per day, an increase of 0.1% q-o-q and 1.1% y-o-y on a like-for-like basis. Rents in the majority of the projects remained unchanged due to growing regional competition. However, malls with clear positioning and unique retailer mixes still enjoyed rental growth, such as Tianjin International Trade Center in the Xiaobailou Area and Aeon Shopping Center in Zhongbeizhen.
Looking forward, four new malls are expected to enter the market by end-2017. A large shopping mall, TeeMall, is expected to open in 2Q17, adding another 190,000 sqm of space in core retail submarket, Heping Road submarket. Sunny Yin, Head of Retail for JLL Tianjin, commented, "Benefiting from access to Metro Line 3 and with a large number of F&B and experiential retailers, the mall is forecast to become a destination mall and attract shoppers from the entire central Tianjin area. This is likely to increase the competition in the core area, especially in Heping Road and Binjiang Avenue submarket."
High-end residential market sales volume decelerated to 1,754 units, a decline of 24.9% q-o-q and 39.6% y-o-y. The decline was mainly driven by the tightening housing measures that came into force in late 2016 and the seasonal effect of the Chinese New Year holiday. Unsold stock in the high-end market stood at 634 units by end-quarter, its lowest level since 2005.
A total of 1,079 new units were launched in 1Q17, a decrease of 45.6% q-o-q and 29.2% y-o-y. Vanke Dongdi Meijiang Highrise Phase I, in one of the main high-end residential area of Meijiang, was launched with 503 units of which 482 were sold at an average price of RMB 26,894 per sqm. The relatively low price of this project attracted both first-home buyers and upgraders.
High-end residential capital values declined after four quarters' increase, declining 2.4% q-o-q but still rising 38.6% y-o-y. The tightening policies introduced in late 2016 started to restrict housing demand and dragged down market prices. Rents saw a marginal increase in the quarter, rising 0.3% q-o-q and 1.2% y-o-y.
Further housing restrictions were announced in Tianjin starting from April 1st 2017, including the prohibition of local unmarried and non-local residents from buying a second home and raising the down payment for second-time home-buyers from 40% to 60%. Chelsea Cai, Head of Research for JLL Tianjin, remarked, "The new round of housing restrictions is aimed to cool down the speculator demand in Tianjin. Therefore, we forecast the sales volume and market average price are going down, and the impact to continue to end-2017."
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