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According to JLL Tianjin's 1Q18 Property Review
Tianjin, 16 April 2018 – "It is a good time to be looking for office space in Tianjin with new lower-cost options in non-core areas and landlords in the core CBD still remaining flexible on rent options in high quality buildings." said Michael Hart, Managing Director of JLL Tianjin. In 1Q18, in the retail sector, Luneng CC Plaza opened in non-core retail area as a regional mall to cater to family shoppers and brought several new brands into Tianjin. Leasing activity remained active in the logistics sector, where e-commerce, 3PLs and manufacturers remained the dominant source of demand. Spring Festival season cooled down the residential market temporarily with lower sales volume and prices. New rental housing policy for non-local residents has been released to support the rental market.
Demand from finance companies and professional service firms remained the most active, followed by that from information technology (IT) firms. Traditional financial institutions and insurance companies continue to account for most of the leasing transaction volume. For instance, Tianjin Rural Commercial Bank (TRCBank), a local commercial bank, leased over 3,000 sqm in Vantone Center and BOC-Samsung Life, a subsidiary of Bank of China focusing on health and accident insurance, leased around 2,400 sqm in Metropolitan Plaza. As high-quality office buildings gradually entered emerging areas, IT start-ups, trade companies and media companies which are cost-sensitive have started to actively look for office space in projects such as Sino Ocean International Center, one Grade A project which was completed in 4Q17, in Hedong District. Therefore, the IT sector, following finance and professional services, drove the leasing demand, accounting for 14.1% of the quarter's transaction volume.
Total stock remained unchanged at 2.9 million sqm as no new projects entered the market in 1Q18. As no new projects came on stream, the stable demand with positive net absorption of 31,100 sqm helped push the overall vacancy rate to decrease 1 percentage point to 35.8% by end of 1Q18. The Grade A vacancy rate further went down to 44.2%, a decrease of 2.5 percentage points q-o-q and 5.6 percentage points y-o-y. The Grade B vacancy rate saw a small dip by 0.4 percentage point q-o-q and 0.3 percentage point y-o-y to 31.4%.
Overall rents edged down slightly in 1Q18, falling 0.3% q-o-q and 1.7% y-o-y, to RMB 91.8 per sqm per month. Grade A rents fell 0.2% q-o-q and 0.9% y-o-y to RMB 103.0 per sqm per month. Tenants still had the power in asking more leasing incentives due to sustained high vacancy in the tenant favorable market.
One en bloc sales transaction was recorded in the quarter. China Life, one of the largest players in the financial and insurance industry in China, bought the office project Tai'andao No. 5 building located in the Nanjing Road-Xiaobailou submarket for a total transaction price of RMB 1.9 billion. Domestics non-banking financial institution and insurance company have been the main players in the commercial real estate investment market in recent years. They are not only interested in holding commercial properties in Tier 1 cities, such as Beijing and Shanghai, but also properties located in prime locations in Tier 2 cities, such as Tianjin, and Xi'an.
Nine new office projects are expected to enter the market in 2018, and these will add 618,000 sqm, a new supply peak for the past decade. The overall vacancy will be pushed up to 40.9% by end-2018. "Seven of these nine projects are located outside the traditional submarkets," noted Lv Weiran, Head of Markets for JLL Tianjin. "Tenants who are price-sensitive and looking to upgrade their office space will have more options."
E-commerce giants, supporting 3PLs and manufacturing firms spurred demand and helped net absorption in 1Q18 to stand at 205,600 sqm, which was down 17.7% q-o-q but four times the 1Q17's figure. Notable transactions include a leading e-commerce giant leasing over 130,000 sqm of space in Ninghe to expand its presence across the city and a domestic oil and gas equipment manufacturer leasing around 9,000 sqm in Xiqing. Given the limited availability of large spaces in mature submarkets such as Wuqing and Beichen, Xiqing in the southwest and Ninghe in the northeast of the city are getting more attention.
Three new projects entered the market, adding 176,000 sqm of space in 1Q18, which helped the total non-bonded market stock reach 3.0 million sqm, an increase of 12.6% y-o-y. The strong demand helped the overall non-bonded vacancy further decline to 12.9%, down 1.9 percentage points q-o-q and 9.0 percentage points y-o-y although there was new supply.
As the non-bonded market vacancy rate declined and significant transactions were recorded in the quarter, rents continued to rise. Net effective rents in the non-bonded market rose 1.1% q-o-q and 3.1% y-o-y on a chain-linked basis by end-1Q18 to RMB 0.94 per sqm per day.
Eight other projects with a total GFA of 478,000 sqm are expected to enter the market throughout the year and push the overall vacancy rate up by end-2018. William Gao, Head of Industrial for JLL Tianjin commented, "Leasing demand is expected to be strong in 2018, with e-commerce firms, 3PLs and retailers continuing to drive demand. With the area of vacant space in the mature submarkets, such as Wuqing and Beichen, expected to remain low, rents should still see room for growth."
Retail leasing demand was strong in 1Q18, mainly driven by F&B, child-related and fashion brands. Net absorption stood at 112,000 sqm, an increase of 116% q-o-q and 27% y-o-y. Casual dining brands, café and tea brands expanded actively. New-concept F&B brands, such as music cafeteria and restaurants combined with apparel brands, opened in the city centre to attract young shoppers. Child education brands continued to open stores not only in community malls but also at malls in core areas. For example, Riverside 66 leased about 1,000 sqm of space to EF Education and Delight City opened a 500-sqm Tomato Art School, a domestic school. "Social media's growing impact on the retail market and the strong purchase power of millennials supported the retail leasing demand in Tianjin," said Sunny Yin, Head of Retail for JLL Tianjin. For example, Air Jordan, an international sport brands leased about 500 sqm of space in Tianjin Joy City as the first flagship store in Tianjin.
One large shopping mall - Luneng CC Plaza - entered in 1Q18 as the first shopping mall in the surrounding area, adding 120,000 sqm of retail space in the non-core area in Nankai District. The mall entered with a high commitment rate of 90% as the first typical shopping mall in that area, benefiting from clear positioning to mid-income families and the project's high accessibility. The opening of Luneng CC Plaza also brought Tianjin shoppers new brands, such as movie theatre Womei Cineplex and an international music themed restaurant, Hard Rock Café. Strong demand pushed down the market vacancy rate slightly to 11.5%, a decrease of 0.1 percentage point q-o-q and 3.1 percentage points y-o-y.
In line with the strong demand, rents climbed up to RMB 11.7 per sqm per day, an increase of 0.5% q-o-q and 3.1% y-o-y. Most shopping malls in core areas and among large residential catchments continued to increase their rental value gradually, offsetting a few other malls which saw large vacancy and rents staying unchanged due to unclear positioning and lack of target shoppers.
Looking forward, five new projects are expected to enter the market in 2018 and push up the total stock to 4.4 million sqm. Only one mall, L+Mall, is expected to open in the core retail area with mid-to-high positioning. Four other new malls will largely expand the landscape of Tianjin retail market as the first high-quality retail project in each surrounding area.
The high-end residential market continued to be quiet in 1Q18. Tight housing curb policies continued, and the holiday season slowed down the process of purchasing and new supply pipeline. Several banks increased their mortgage rates on both first house and second house buyers, which also cooled down market sales volume. High-end residential market sales volume stood at 268 units in 1Q18, a decrease of 66.9% and 84.7% y-o-y.
A total of 631 new units were launched in the quarter, a decrease of 59.0% q-o-q and 41.5% y-o-y. Hexi Meijiang area and New Badali and Hedong District were the active areas with new projects launched. Notable projects include Tianfang Meijiang project, which has access to under construction Metro Line 6 and future Line 10, launching 196 units at an average price of about RMB 45,837 per sqm. The relatively low transaction volume pushed up the inventory levels in the overall high-end market to 19.3% q-o-q.
High-end housing prices saw a slight decrease of 5.3% q-o-q but still saw an increase of 4.4% compared with the previous year.
We forecast that the residential market will remain stable under the tight policy. "The fundamentals of the Tianjin economy continued to be positive and upgrading demand is expected to continue to support the sales volume and prices to rise slightly," noted by Chelsea Cai, Head of Research for JLL Tianjin.
To attract non-local talent, Tianjin government implemented preferential rental house policies. Young workers who have a bachelor or higher degrees and who started a business in Tianjin could become registered permanent residents and enjoy better social security and other rights same as local citizens if they rent a house in Tianjin. The new policy is expected to encourage the rental housing market and support high-end housing demand in the long term. We also saw several rental apartment projects expanding in Tianjin, such as Port Apartment developed by Vanke and Guanyu Apartment developed by Longfor. We forecast that the growing rental apartment market is expected to make the city more attractive to young talent from other places.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion and fee revenue of $6.7 billion; managed 4.6 billion square feet, or 423 million square meters; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. At the end of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of 82,000. As of December 31, 2017, LaSalle had $58.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit, www.jll.com.
JJLL has over 50 years of experience in Asia Pacific, with over 37,000 employees operating in 96 offices in 16 countries across the region. The firm won the ‘World’s Best’ and ‘Best in Asia Pacific’ International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the sixth consecutive year by Real Capital Analytics. www.jll.com/asiapacific
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