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tianjin commercial property market has been active and prosperous
here is a scenic land
Editor: Kathryne Ogrod & Elsa Zhang
Tianjin 30 October 2007 – As 3Q07 closes, we take a look back at the past nine months and observe that the commercial real estate market in Tianjin has been quite active and prosperous. The market is seeing plenty of leasing activity for office buildings, with both existing tenants and new arrivals looking for space. Also, demand for the retail sector remained strong in the third quarter. Institutional investors were actively looking, but no deals were announced and there was a significant chance that industrial assets would trade. “The continued focus on the Binhai area and the investment from Airbus near the airport make a number of logistics properties in the area look very attractive," noted Michael Hart, Managing Director of Jones Lang LaSalle Tianjin office.
Office Market
The net absorption in 3Q07 reached 2,704 sqm, making the vacancy rate of Grade A Office drop to 33% from 35.6% in the last quarter. There were however, a large number of leases signed and when these moves were completed, we expect substantially larger quarterly take-up figures in the following quarters. Typical tenants still range from 150 to 600 sqm each and the average effective rental rose to RMB 138.6 per sqm per month, up 1.74% q-o-q.
The Exchange Tower 2, which was completed during 2Q07, continued to see progress in leasing space and its success is encouraging other investors. It ended the quarter with about 40% of its space committed. Recent tenants include DHL (818 sqm), Schenker (933 sqm), and Keppel Corporation (717 sqm) relocated from Tower 1. Hart added, “Service firms are now staking out a place in Tianjin and those that were already here are growing or looking for better-quality space.”
Tianjin International Building, which saw several tenants move to The Exchange, did not actively promoted the vacated space, but rather made it available for existing clients to demand. We believe this shows the strength of the existing tenant bases to absorb more space. In addition to the space leased during the quarter, a number of serviced office operators and foreign banks are looking at the Tianjin market.
No office properties were completed during the quarter, but Tianjin Center, which is located along Nanjing Road, was short listing candidates to assist with pre-leasing work. We believe that the building will be completed in late-2008. Hutchison Whampoa, which has a 100,000-sqm office tower under construction, was slowed during basement work, pushing back the completion date closer to 2010 rather than 2009. Work is also underway on the Beijing Financial Street Project along the Hai River and a number of Grade B strata-titled buildings are nearing completion.
Retail Demand
Retail rents are almost unchanged in the past quarter as existing supply had very low vacancy rate and most tenants have been quite stable. Rents remained strong and ground floor space on Nanjing Road ranged from RMB 450 to 900 per sqm per month in 3Q07, showing a slight increase from the previous quarter. Retail properties along Nanjing Road and Binjiang Avenue continue having higher rental surpassing the overall market.
Demand remained strong in 3Q07. A number of international luxury brands have leased space in Tianjin’s top retail properties. Gucci opened its first store in Tianjin on the ground floor of Hisense Plaza, which covers an area of 421 sqm. Louis Vuitton and Tiffany are doing fit-outs for their presence in Friendship Store on Youyi Road. Armani Collezioni opened its second store in Tianjin on the ground floor of Isetan, which covers a GFA of 150 sqm. Obviously, retailers are speeding up their expansion in Tianjin, while a number of new high-end brands are stepping into Tianjin for the first time.
No new supply was delivered to the market in 3Q07, while the main activity was accessible, retail properties were undergoing renovation and repositioning.
Industrials Markets
Industrial developers such as Prologis continue to build their portfolios, anticipating the wave of logistics users that will be expanding in Tianjin in 2008. The Wal-Mart distribution site on the Gazeley G-Park in the Beichen District is nearing completion and other users are looking seriously at taking space on this site as well.
Investment Deals
There were no major investment announced during the quarter but a number of government-related sites and assets were being prepared to go through a tender process in late 2007 or early 2008. Michael Hart noted, “The strong interest in Tianjin as an investment market will mean that both privately held and government-held sites will change hands over the next 12 months.”
Outlook
Looking forward, investors and developers will be keenly focused on the source, type, and size of office leasing demand. We expect demand in the short term to help fill The Exchange Tower 2 by mid-2008. Additionally, policy announcements regarding more concrete incentives for firms to move to Binhai and specifically related to the financial sector are highly anticipated. The retail market will continue to be driven by the booming economy and rising incomes in Tianjin. We will see new retailers enter the market and existing retail projects upgrade to stay appealling and to compete against competitors. These brands and centers will not only help reinforce some of the retail centers’ strength, but will also highlight some of Tianjin's new retail offer. The industrial sector is also expected to be an area in great demand in the city. Hart added, “The industrial and lostistics market is heating up in China and no place is as well situatied as Tianjin, with its strong manufacturing base, large port, and growing consumer market.”
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