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Office – Increasing demand helped reduce vacancy rate to the lowest on record for Grade A officeBenefiting from the entrance of domestic financial and professional companies in Tianjin's market and the limited new supply, both Grade A and B office properties are enjoying low vacancy rates. Vacancy rates for Grade A office properties fell further to 2.5% in 2Q11, the lowest on record. Although domestic companies are still the key driver for office space, it is worth noting that nearly 20% of total office spaces transacted in the overall market in 2Q11 were taken up by MNCs, especially those from Europe and Korea. The Youyi Road sub-market enjoyed the largest transaction volume in 2Q11, while Ningtai Plaza (宁泰大厦), the first high-quality office property in a non-core business area, also achieved high office transaction volume.
The 31,500-sqm Ningtai Plaza on Weijin Road South in Nankai District is the only completion witnessed in 2Q11. The property was developed by the Tianjin Ningfa Group Co Ltd, a well-known local developer with a large number of land holdings in the area.
The absorption volume of the office transaction space remained strong in 2Q11. Overall rental rates went flat compared with last quarter, averaging RMB 3.7 per sqm per day in 2Q11. As vacant space diminished quickly and demand continued to be robust, rents for Grade A office properties rose at a stable rate of 1.6% q-o-q in 2Q11, while the rental for Grade B office buildings remained stable compared with the past two quarters.
Tianjin World Financial Center (TWFC, 天津环球金融中心), along the Haihe River in Heping District, is set to enter the market in 3Q11. The TWFC achieved its target office space sales goal and has seen vibrant pre-leasing activity. The better-than-expected rental performance of TWFC even before its official market entry along with the further delay of Metropolitan Tower is expected to have a minimal effect on the office vacancy rates over the next few quarters.
Retail – New completions brought unique operating strategies and a more sophisticated shopping environment to consumersTwo new projects, Lotte Department Store (乐天百货) and Yamada Denki (亚玛达电器), opened in prominent locations in 2Q11, bringing unique operating strategies and a more sophisticated shopping environment to the market. Owned and operated by Korean retail company, the new Lotte Department Store is set to add dynamism and sophistication to a previously lackluster market. Lotte introduced around 90 new brands in Tianjin across various product segments, offering an international flavor with brands from Spain, the US, Germany, and Korea. Lotte has made it very clear that its strategy is to target white collar, high-income female consumers aged between 20 and 40.
Yamada Denki, a Japanese retailer of technology and entertainment products, opened its second retail outlet in China along Tianjin’s Nanjing Road in June 2011. Proportionally, the store dedicated 80% of its space to selling digital and electronic products, with the remainder offering lifestyle services such as optical and dining. Due to its distinctive operation strategy, Yamada Denki is transforming the position of an electronic retailer into a dynamic, customer-driven company that focuses on enhancing consumers’ enjoyment.
Although the two new completions coupled with the re-opening of 858 City Plaza (858城市广场) added 137,000 sqm to the overall market, vacancy rates increased only slightly by 1.2% q-o-q to 5.3% in 2Q11. Both Lotte Department Store and Yamada Denki, which operate on a department store model, opened with 100% occupancy levels.
The Tianjin retail sector typically sees an annual off-season period during the second and third quarters. As a result, sales across a number of projects in 2Q11 did not achieve strong q-o-q growth. However, compared to the same period last year, the recorded growth rate for the quarter was a significant 20.7% increase y-o-y.
High-end Residential – Tightening policies stabilized sales prices while transaction volume surged temporarilyIn early 1H11, the Central and local government adopted various measures to curb rising residential prices. These control measures are expected to calm the rising sales price of Tianjin’s high-end residential projects temporarily as the government has not shown any sign of easing the current policies, and thus they will most likely remain in place for the remainder of 2011. The overall transactions for most of the projects in the market remained weak.
Tianjin's high-end residential sales market in 2Q11 was highlighted by the launch of the long awaited Hutchinson Wampoa’s Tianjin Metropolitan (天津都会轩) in the primary commercial area of the city, Heping District. Three high-rise residential buildings and some “town homes” units which sit directly on top of the retail podium were made available for sale. Another newly launched project is Magnificent Phase I (雍华府一期) in Hedong District, developed jointly by domestic China Merchants Property Development and Hong Kong-based The Wharf (Holdings) Limited.
The transaction volume surged temporarily in 2Q11 with majority of the transactions coming from the two newly launched projects—Tianjin Metropolitan and Magnificent Phase I. These two new projects enjoyed good take-up and helped push up the sales volume in 2Q11. The transaction volume nearly quadrupled the figure seen in 1Q11.
Elsewhere, overall demand for the majority of existing pre-sale projects remained weak in 2Q11. The average capital values for Tianjin’s high-end residential projects remained unchanged in 2Q11 at around RMB 21,600 per sqm, a slight 1.0% decrease q-o-q.
Logistics – Rentals of non-bonded warehouse hit a record high after six consecutive quarters of strong absorptionIn 2Q11, the majority of new leases were signed in non-bonded projects. In addition to the 3PLs as the main demand driver, more diversified industries such as manufacturing, trading, and retail began to take up warehouse space. The Mapletree Tianjin Airport Logistic Park (丰树天津空港物流园) saw take-ups from domestic supermarket operator Wumart, which rented 20,000 sqm, and Yamada Denki, a Japanese retailer of technology and entertainment products entering Tianjin the first time, which took up 5,000 sqm. As noted earlier, Yamada Denki also recently opened its second retail outlet in China along Tianjin’s Nanjing Road.
After joining forces with the Tianjin Port to develop a bonded warehouse project in the East Port area, China Merchants recently completed its second warehouse project in Tianjin. China Merchants Logistics Tianjin Airport Distribution Center (招商局物流天津空港分发中心) added 73,000 sqm of non-bonded warehouse space to the Tianjin Airport Economic Area in 2Q11. Notably, 30,000 sqm of its space was already occupied upon its completion.
The overall market rental averaged RMB 0.90 per sqm per day in 2Q11, a substantial increase at 9.4% q-o-q. This is the highest growth posted since 2007. Particularly, due to the aggressive leasing deals in non-bonded projects, the major growth driver had been non-bonded properties that were already constrained in terms of available space.
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