The logistics market vacancy rate reached a nine-year low; talents attraction plan pushes up demand in Tianjin housing market

​According to JLL Tianjin's 2Q18 Property Review

Tianjin, 12 July 2018 – "Thanks to its well-developed road connection in the Jing-Jin-Ji area, Tianjin's logistics market continues to benefit from China's ongoing e-commerce boom", said Michael Hart, Managing Director of JLL Tianjin. In 2Q18, two Grade A office buildings, China Overseas Plaza and Lujiazui Financial Plaza B, completed in the emerging area, adding 153,000 sqm into the market. As of 2018, the number of Grade A office buildings in downtown Tianjin reached 15 with 1.1 million of GFA.  Meanwhile, in the retail sector, one retail project, Tianjin CRCC Mall I, located in Hebei district opened in non-core retail area as a community mall along Metro Line 6, expanding the retail landscape in Hebei District. Following the same pattern as other tier 2 cities, Tianjin's new talent attraction plan drove the housing demand for both local and non-local residents in the short term.

Office

Demand continues to stem from domestic financial services companies, a sector that accounted for 35% of the quarter's transaction volume. Notable transactions included Taiping Life Insurance, a domestic insurer, leasing 4,900 sqm in Metropolitan Plaza. Zhongli, a local fund company, leasing 2,000 sqm in Maoye Plaza. Recent high-quality completions such as Lujiazui Financial Plaza, China Overseas Plaza, and Sino Ocean International Center, in the emerging areas continued to help drive demand from cost-sensitive sectors, such as information technology (IT), shipping and logistics, and trading companies, in the quarter, enabling these tenants opportunities to expand or relocate. For instance, Ehomesoft, a domestic IT company, moved out from an industrial park and leased 370 sqm in China Overseas Plaza in Hexi district, one Grade A project completed in 2Q18.

Two Grade A buildings, China Overseas Plaza and Tianjin Lujiazui Financial Plaza B, were completed in 2Q18, adding 153,000 sqm to the market, helping Grade A stock reach 1.1 million. The Grade A vacancy rate increased 5.3 percentage points q-o-q and 1.3 percentage points y-o-y to 49.5% due to the large-size supply, while the Grade B vacancy fell 0.3 percentage points q-o-q and 1.5 percentage point y-o-y to 31.1% as no new project entered the market this quarter.

Overall rents edged down slightly in 2Q18, falling 0.1% q-o-q and 1.2% y-o-y, to RMB 91.8 per sqm per month, as landlords in both core CBD area and emerging areas remaining flexible on rent options in this tenant favorable market. Grade A's rent saw a slight decrease of 0.1% q-o-q and 0.8% y-o-y to RMB 102.0 per sqm per month.

Seven more projects with a total GFA of around 420,000 sqm are expected to enter the market by 2018. New supply over the next half year is expected to concentrate in the emerging office submarket, such as New Badali. "With occupancy increasing on Nanjing Road-Xiaobailou submarket, we expect to see landlords phasing out rental discounts", Lv Weiran, Head of Markets for JLL Tianjin noted, "Cheaper rents will be available in emerging areas such as New Badali."

Logistics

Demand continued to be robust in Tianjin non-bonded logistics market, resulting in net absorption of 320,500 sqm, an increase of 55.9% q-o-q and 2.5 times y-o-y. Large e-commerce players and supporting 3PL companies, followed by manufacturers, continued to be the most active in looking to expand their presence in Tianjin. Wuqing and Beichen remained popular, but absorption was greatest in emerging submarkets like Jinnan and Xiqing, where the city's vacant space is concentrated. For example, a Beijing-based 3PL company leased out Ping'an Logistics Project I (102,000 sqm) in Jinnan at its opening. In addition, a Shanghai-based power train products manufacturer leased around 20,000 sqm in GLP Pujia Logistics Park.

One new completion, Ping'an Logistics Project I, entered the market in 2Q18 with a 100% commitment rate, adding 102,000 sqm of space to the non-bonded market. Coupled with strong demand, the vacancy rate of the non-bonded market plummeted 7.5 percentage points q-o-q and 12.9 percentage points y-o-y to 5.4% as of end-2Q18 – a new nine-year low.

Rents saw a significant increase of 2.1% q-o-q and 4.8% y-o-y to RMB 0.96 per sqm per day. Landlords in the prime locations of Wuqing and Beichen took advantage of strong pricing power due to tight vacancy rates; Xiqing also witnessed rental increase of 2.8% q-o-q and 7.0% y-o-y as it is the most active submarket in taking spillover demand from prime locations.

Another six non-bonded projects with a total GFA of 335,700 sqm are expected to enter the market through end-2018. William Gao, Head of Industrial for JLL Tianjin commented, "Key demand drivers are e-commerce firms and 3PLs, which are likely to continue to benefit from the growth of China's e-commerce industry. We forecast that the demand in Wuqing, Beichen and Xiqing continuing to be strong, helping rents growth in a faster pace in 2018."

Retail

In the competitive retail environment, several retail projects were undergoing tenant mix adjustment resulting in slow leasing demand growth in 2Q18. For example, R&F Square is changing tenant mix by adding more children's education brands and Robbinz Department Store is adjusting basement to focus on F&B sector.

Net absorption during the quarter saw a slight slowdown, totalling 39,700 sqm, a decline of 89.8% q-o-q and 78.9% y-o-y. Demand was mainly driven by children's brands, electronics, and fashion brands. Tomato Art School, an art education centre for children, opened four new stores in shopping malls, including Delight City and Metropolitan Plaza. Electronics brands leased small space in both mega malls and community malls. Also, several international fashion brands debuted in major retail locations in Tianjin. For example, Pleats Please, a Japanese clothing store, opened a 300 sqm store in Isetan along Nanjing Road, and American brand Champion and Italian streetwear brand Off-White also entered Tianjin during 2Q18 in core retail areas. "International brands remain interested in entering mature projects in key retail locations as the purchasing power of young shoppers is growing," said Sunny Yin, Head of Retail, JLL Tianjin.

A small-size community mall — Tianjin CRCC Mall I — came on stream in 2Q18, adding 45,000 sqm of retail space in the non-core retail area of Hebei District. As a retail podium of an office building and a residential apartment building, the mall features mid-range F&B, household and services tenants to cater to the daily needs of the area's residents and office workers. With high accessibility to Metro Line 6 and proximity to a high-density residential area, the mall has enjoyed relatively high foot traffic since it opened. Demand and new supply increased at a similar pace in 2Q18, leaving the market's overall vacancy rate at 9.8%, unchanged q-o-q and a decrease of 2.4 ppts y-o-y.

With the vacancy rate stable, rents increased slightly, up 0.5% q-o-q and 3.2% y-o-y, to RMB 11.6 per sqm per day. The higher rents came primarily from mature malls with tight vacancy rates, while rents were largely unchanged in a few underperforming malls located near strong competitors.

Looking ahead, two new malls are expected to enter the market in the second half of the year, adding 169,000 sqm of space. L+ Mall and Tianjin Poly Plaza are both high quality shopping malls from experienced developers. The two malls are expected to open with comprehensive tenant mixes and bring new brands such as Duozoulu and Ella Supermarket into central Tianjin. Once they come on stream, competition in key submarkets is forecast to intensify, providing more shopping choices for local residents.

High-end Residential

In 2Q18, Tianjin's residential market was stimulated by two local government policies designed to attract educated and skilled talents. Starting 1 April, non-local eligible residents may apply for a Hukou based on the apartment they rent. On 16 May, the government rolled out a talent attraction plan that lowered threshold requirements for newcomers. The rule changes helped boost non-local residents' housing demand, which was also supported by pent-up demand from local residents, although housing restrictions remained in effect. As a result, high-end residential transactions in April and May stood at 355 units, an increase of 32.5% from 1Q18 and 50.3% higher than 2Q17.

A total of 759 new high-end residential units launched in the quarter, an increase of 20.3% q-o-q and 2.4% y-o-y. Most of the new units were in existing projects in mature residential submarkets, namely Meijiang, Water Park and Haihe Riverside submarkets. For example, Wellington Sea Garden Building launched four new buildings, bringing 327 new units to the market.

Transaction volume grew more slowly than new supply, pushing up inventory levels. As a result, the average price of high-end residential in April and May saw a slight decline of 3.1% q-o-q and 8.9% y-o-y. However, market sentiment should improve in light of the new policies, and transaction volumes are expected to rise by end-2Q18.

"The new talent attraction plan should help speed up Tianjin's economic transition, which will improve Tianjin's economics fundamentals," said Chelsea Cai, Head of Research at JLL Tianjin. "In the end, we foresee housing demand returning to a more rational level, which should slow the pace of housing price increases."

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