Retail
Tianjin's retail sales saw a record y-o-y growth rate of 18.2% in 2007, surpassing its already high GDP growth rate for the first time.  In the first two quarters, we have seen no sign of a slow down in retailers' expansion.  In fact, we have witnessed more newcomers to the local market.

Retailers, Mango and Zara began competing for Tianjin market share by opening their first stores in Milenio on Nanjing Road, occupying 2,000 sqm and 200 sqm respectively. The luxury market was also active, as Louis Vuitton opened its first store in the city in Friendship Department Store, covering 345 sqm of space. Just few months later, Dior also leased 410 sqm next in the same store, exhibiting both their Dior Women and Dior Homme brands.

The F&B sector was another highlight in 2Q08. Golden Jaguar had its opening in June, occupying 6,000 sqm in Robbinz Department Store, while Gold Jasmine leased 1,100 sqm in Hisense Plaza.  The Exchange Mall recently completed the renovation of its basement and reopened to the public in June, this area, now called "The Link" offers a plethora of F&B options with brand new design concepts and a number of new retailers to provide a fresh look and new options to consumers, including Sushi Express, etc.

In 2Q08, the average retail rental was at 456 per sqm per month. Consumer spending power and promising economic developments have ensured the success of Tianjin's retail sector. Several landlords raised their asking rental after renovation and tenant mix adjustment.

As the 2008 Olympic Games approach, Tianjin, one of the co-host cities, continues improvement and beautification of its key areas and buildings. Moreover, a number of well-known developers like Lippo Group and Guangdong Teem (Holding) Ltd have proposed to develop large-scale retail projects in the pedestrian street area of downtown Tianjin. At the same time, Binhai New Area is also attracting attention from foreign investors. AEON Co., Ltd, Japan's largest retail company, has recently signed an agreement with TEDA Group to develop AEON Mall in Tianjin Economic-Technological Development Area.

Grade A Office
In the first two quarters of 2008, numerous new entrants, particularly professional service and finance corporations, have become the major drivers of take up in Tianjin's Grade A office market. For example, Arup Group's first Tianjin location was opened in The Exchange Tower 2, occupying a space of 278 sqm.  Ernst &Young also leased 354 sqm in the same tower to open its first Tianjin office. HSBC opened its Nanjing Road Sub-branch in The Exchange Tower 1, bringing its total sub-branches in the city to five.

Moreover, a number of MNCs are upgrading their work environments and relocating to more prestigious projects, such as Isui International Trade Co., Ltd. and Jardine Logistics Group both moving from Grade B buildings to The Exchange complex.

In 2008, no major office projects will be completed in Tianjin.  Vacancy rates declined to 25.71% in 2Q08, from 27.22% of 2007 year end.  Tenants will have very limited options until the completion of Tianjin Metropolitan, developed by Hutchison Whampoa, in 2010. Gross rentals underwent a slight drop, reaching RMB 175.85 per sqm per month. This was mainly due to a competitive rental reduction by Tianjin International Building, the oldest Grade A office building in town, when confronted with leasing pressure from The Exchange Tower 2, currently the highest quality office project in Tianjin, which has seen demand for its higher quality space increasing.  Some of the tenants that entered Tianjin for the first time in the quarter included Ernst & Young and Arup.  Meanwhile HSBC added another branch in The Exchange Tower 1.

In addition, Tianjin Economic - Technological Development Area (TEDA), about 60km east of central Tianjin, has recently announced plans for a new combined development called Modern Service District.  This large scale development has a planned GFA of approximately one million sqm and a large portion will be developed into high-quality office space. This is expected to change and upgrade the entire office market in TEDA, which is now comprised of lower-quality strata-title office buildings.

Logistics
Third-party logistics (3PL) companies continue to play an important role in the absorption of high-quality warehouse space in the Tianjin market.  Manufacturing corporations and fashion retailers demonstrate a stronger demand for such space with a considerable number setting up their distribution centers in Tianjin, e.g. a new 20,000 sqm distribution centre established by Metersbonwe Inc in the newly-completed ProLogis AIP Park phase I, and Volkswagen Group's 25,000 sqm leased in ProLogis Park TEDA phase II.

Meanwhile, a number of logistics service providers are seeking to expand their operations in strategic locations which provide adequate transportation accessibility to maximize their handling capacity, e.g. Kerry EAS Logistics leasing of 1,000 sqm in Sino-Link Logistics Park Phase I.

Effective rental of the overall market in 2Q08 remained at RMB 0.89 per sqm per day from the previous quarter. With the strong demand, the overall vacancy rate decreased to 19.87% in 2Q08.  Tenants still favour the Customs supervised and bonded projects which are achieving lower vacancy rates and substantially higher rentals, compared with non-bonded ones. Tianjin's logistics stock reached 726,937 sqm by 2Q08. Later this year, several projects by international logistics players are expected to be completed, mainly concentrated in the port and airport areas.

"Traditionally manufacturers were content to use their own warehouses, but that is changing, with third-party, professionally developed logistics facilities now being sought after," noted Hart.  "As such, we anticipate considerable warehouse demand from Tianjin's logistics market over the next several quarters."

Investment
Investors continue to be keen on Tianjin.  City Developments Limited (CDL) from Singapore purchased an office along Youyi Road which is expected to open in February 2009. Lippo Group and Tianjin Modern Group will co-invest USD 286 million in the Central Park redevelopment project next to the pedestrian streets.  Additionally, these two groups are also cooperating to develop the North International Commercial and Trade Center with an investment of USD 1.14 billion in Tianjin.

Summary and Outlook
In the first half of 2008, we witnessed an active market with development continuing at a rapid pace and occupiers moving into the market to help absorb existing space.  We expect demand for office space to come from the professional service sector and specifically we are expecting stronger demand from financial firms later this year.  Fuelled by the fast growing spending power of Tianjin residents, retailers are aggressively expanding in or entering Tianjin, we expect that trend to continue throughout the third and fourth quarters.  We believe off of the back of strong demand for logistics space, rents will continue to grow.  The trend is likely to keep interest in Tianjin high.  Hart noted, "With leasing demand across sectors more visible than it was two years ago, we believe this will help influence new tenants and developers alike to enter the city and will keep Tianjin on the priority list for investors looking for healthy markets to invest. "