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According to JLL Tianjin's 2Q17 Property Review
Tianjin, 18 July 2017 – JLL's 2Q17 property review revealed the following:
Demand continues to stem from finance companies. Demand from domestic finance companies accounted for more than 40% of the quarterly leasing volume and office space areas under 500 sqm were the most popular sizes. For example, First Future, a domestic futures company, leased 500 sqm in Vantone Center for a new set-up and Guanghe Investment, a domestic finance company, leased around 450 sqm in Sunwah IFC. Demand was also driven by upgrading tenants that relocated to Grade A buildings such as Vantone Center, and Sunwah IFC. Minmetals Land Ltd, a domestic real estate company, relocated from a lower tier building to Vantone Center, leasing 860 sqm.
One Grade B building, Rongqiao Center, was completed in 2Q17, adding 39,720 sqm to the Old-town-Haiguangsi submarket. The Grade A vacancy rate declined 1.6 percentage points q-o-q to 48.2% due to the positive net absorption while no new Grade A projects came on stream in 1H17. As a new completion entered the market with over 85% vacant space, the Grade B vacancy rate saw a slight increase of 0.9 of a percentage point q-o-q, but a decrease of 1.9 percentage points y-o-y. This was because no new supply had entered the Grade B market and there was positive net absorption in the previous three consecutive quarters.
Net effective rents continued to decline, falling 0.6% q-o-q and 3.9% y-o-y, to RMB 92 per sqm per month on a like-for-like basis. Since there were no new Grade A completions in 1H17 and no future supply was expected in the upcoming quarters in the core area such as the Nanjing Road-Xiaobailou and Haihe Riverside submarkets, landlords who owned new Grade A projects in these submarkets kept rents stable to absorb the vacant space. As a result, Grade A rents saw a slight decrease, declining 0.2% q-o-q, to RMB 105 per sqm per month and Grade B rents declined 0.6% q-o-q and 2.3% y-o-y to RMB 87 per sqm per month.
Another four projects are expected to complete in 2017, and these will add 237,000 sqm and push the overall vacancy rate up slightly by end-2017. "While more high quality office buildings will gradually enter the market over the next few years, no new projects are expected to enter the Nanjing Road-Xiaobailou submarket, which is the most established CBD area in Tianjin, by 2020. We forecast that the vacancy rate in the Nanjing Road-Xiaobailou submarket will decline gradually and reach 19.6% by end-2020," noted Weiran Lv, Head of Markets for JLL Tianjin.
In 2Q17, demand rebounded significantly with net absorption at 93,004 sqm after a negative figure in 1Q17. The main demand drivers were retailers and 3PL firms. Two notable leasing transactions were Gold Hongye Paper, a domestic paper retailer, leasing around 50,000 sqm in GLP Wuqing Logistics Park Phase II, and Sinotrans, a domestic 3PL company, leasing 3,500 sqm in G Park Tianjin Phase II in Beichen.
Since there were no new completions in 2Q17, the non-bonded vacancy rate fell 3.6 percentage points q-o-q and declined 8.2 percentage points y-o-y to 18.3%. The total stock in Tianjin's non-bonded warehouse market remained at 2.6 million sqm at end-2Q17 and this market has remained inactive with no new completions or leasing activity for over two years. As of 2Q17, Tianjin's bonded warehouse vacancy rate stood at 9.1%.
Net effective rents in the non-bonded market reached RMB 0.92 per sqm per day, an increase of 0.5% q-o-q, and 0.9% y-o-y on a like-for-like basis. The increase was led by submarkets such as Wuqing and Beichen, which saw the greatest demand and decreasing vacancy rates.
Looking forward, seven new logistic projects are expected to enter the market, adding another 312,000 sqm warehouse space. Michael Hart, Managing Director of JLL Tianjin commented: "We forecast that Wuqing will continue to see demand from retailers and 3PLs. Since space in Wuqing is almost fully occupied with a 2.3% vacancy rate, which is considerably lower than Tianjin's non-bonded vacancy rate, landlords will have more negotiating power over rents. As leasing space is limited in Wuqing, we expect the overflow demand to shortly carry over to the Beichen surrounding areas."
Leasing demand grew stronger in 2Q17, with net absorption at 188,000 sqm, an increase of 114.6% q-o-q and 157.3% y-o-y. New leasing demand continued to come mainly from the F&B and entertainment sectors. F&B retailers kept expanding in community malls to cater to nearby residents. For example, Nice Meeting You, a domestic restaurant, leased more than 400 sqm of space in Aegean Shopping Mall; Salsa opened a 400-sqm restaurant in Welife Plaza and several casual dining restaurants leased about 3,000 sqm in Global Mall Tianjin. Jiuxuanlv Music Centre took the place of some F&B stores in Robbinz Department Store, leasing about 500 sqm of space.
Besides the traditional retail categories, some new formats spread to both shopping malls and department stores, such as Mini KTV, game machines and the rapidly expanding 7-Eleven convenience stores. New retail kiosks attracted a growing number of younger customers and the appearance of new categories developed the diversity of the retail market in Tianjin. Outlets in these categories followed the changes in consumer behaviour and took advantage of shoppers' segmented time. "Developers should probably benefit from increased foot traffic and extra rental income as some outlets are located in public areas in shopping malls," commented Sunny Yin, Head of Retail for JLL Tianjin.
TeeMall opened in the core area, Heping Road, adding another 190,000 sqm shopping space and was the only new high-quality shopping mall of 2Q17. It opened with a high occupancy rate at 70% and brought in several F&B retailers new to the city, and a new bookstore – Guangzhou Book Center. Direct access to the metro line and its large areas of space with a high proportion of F&B and entertainment outlets brought further competition to the market. Robust demand dragged down the vacancy rate to 13.9%, a decline of 0.7 of a percentage point q-o-q and 1.3 percentage points y-o-y.
Net effective rents stood at RMB 11.5 per sqm per day, a slight increase of 0.4% q-o-q and 1.1% y-o-y on a like-for-like basis. Established malls with tight vacancy rates continued to see gradual rental increases but some underperforming malls that had poor access to public traffic or were undergoing repositioning offset the increasing rent momentum.
Looking ahead, another two new malls are expected to enter the market by end-2017, adding 87,000 sqm new shopping space. These will be located in high density residential areas in Nankai District and we expect the lack of regional competition and the large consumer base to result in high pre-commitment rates and good performances. The overall vacancy rate is expected to decline continually up to end-2017.
Housing demand compressed during the quarter largely due to the tightening measures introduced on 1 April. These included restrictions on local unmarried and non-local residents from buying a second home and the raising of the down-payment for second-homes. Additionally, several banks cancelled discounts on mortgage rates. Sales volume in the high-end residential market declined to 715 units, a 93.9% decrease q-o-q and an 81.0% decrease y-o-y.
A total of 741 new units were launched in 2Q17, the lowest quarterly total in the last two years. These came mainly from the Meijiang and New Badali areas which accounted for 61.0% of the total. Vanke Dongdi Meijiang Townhouse Phase I was launched with 241 units and these were sold out during the quarter. The units' relatively lower prices than available in other projects in Meijiang and their access to the future metro line attracted first-home buyers.
Capital values in the high-end residential market rose at a slower pace, increasing 11.1% q-o-q and 36.4% y-o-y. Although some tightening housing measures came into force, first-home and upgrading demand remained strong. The limited stock in central Tianjin, especially in the New Badali Area, continued to give developers the chance to raise prices.
We forecast that the tightening measures will remain in force in the next quarter. Chelsea Cai, Head of Research for JLL Tianjin, remarked, "The new housing restrictions are expected to keep the market quiet in terms of transaction volume. However, the limited high-end project supply in popular areas will make it hard for average prices to stop increasing."
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