Skip Ribbon Commands
Skip to main content

News Release

Hong Kong and Macau

Office Rent Tapers Off Slightly; Retail Leasing Demand Remains Strong

HONG KONG AND MACAU, February 6, 2012 – The overall average rents in Qingdao's office market decreased 0.18% compared with the previous quarter but posted a 3.72% increase y-o-y. In the city's retail market, large-scale recreational resort-style developments had been active while more sub-districts and satellite cities started to show some retail potential. Meanwhile, price decreases for residential properties were becoming more entrenched in the market as the government's tightening policies remain in place.

In 2011, average effective rent increased 3.72% y-o-y, decreasing slightly in the fourth quarter.
Despite various media outlets reporting some signs of a slowing economy in other parts of China, Qingdao maintained a relatively stable average rental rate throughout 4Q11, reaching RMB 3.10 per sqm per day. Compared with third-quarter figures, the market saw a slight decline of 0.18%—although this was expected as several seasonal factors coincided as the year ended. Landlords and tenants alike are traditionally apprehensive at this stage, particularly when faced with an uncertain economic climate in 2012.

New Grade A office supply in 2012 to have a positive effect on the market. Due to several postponements, no new Grade A buildings came online in 2011, although there are already three large-scale Grade A office buildings expected to enter the market over the course of 2012. This will more than triple the existing Grade A stock of 79,744 sqm to 274,767 sqm by end-2012 and bring a substantial amount of Qingdao’s office stock up to international standards.

Conservative expansion plans, excess supply and high vacancy rates to characterise 2012. With an uncertain and possibly more volatile economic environment in 2012, we expect trading and logistics companies to be more conservative in developing their expansion plans for the year. According to Michael Hanschen, General Manager of Jones Lang LaSalle Qingdao: “These two core industries are consistently the largest occupiers of office space in Qingdao, and when coupled with the large amount of new stock due in 2013, we expect the office vacancy rate to increase substantially throughout 2012, putting downward pressure on rental rates in the second half of the year.”

As a summer tourism hotspot, Qingdao is attracting large-scale recreational resort-style developments.
Huangdao has attracted two large-scale equity transactions in 4Q11, namely Sea Carnival and Tangdao Bay Yacht Club. Combined, these two mixed-use developments total almost 1.2 million sqm of retail, residential, hotel and recreational facilities. Both projects are located on Binhai Avenue, a seaside arterial road spanning the southern coast of the peninsula. Haiwan Bridge and Jiaozhou Bay Tunnel, two large-scale infrastructure projects completed in June 2011, have provided a valuable direct link between downtown Qingdao and Huangdao, further attracting investment and commerce on the district.

Licang’s new retail mall enjoyed a high occupancy rate, as more sub-districts and satellite cities start to show retail potential. The 110,000-sqm shopping mall Powerlong opened in the fourth quarter of 2011. This is the first large-scale shopping mall located in Licang, a northern district of Qingdao; and within the first month of opening, it had successfully leased 80% of its total leasable area. As Licang is relatively far from the traditional retail hubs of Shinan and Shibei, its  success is a sure sign that Qingdao’s high population density will ensure that smaller districts will also enjoy strong retail sales. Licang can also expect two new retail facilities to come online in the second half of 2012: Licang Wanda Square with 140,000 sqm and RockCity with 160,000 sqm.

Influx of retail stock in 2012 expected to add pressure to current operators. “Retail sales should continue to perform well over the coming year, but with four projects postponed and three new retail developments scheduled for completion in 2012, existing malls may feel the pressure on their market share,” Said Michael Hanschen. “We expect some of the older malls to begin repositioning themselves in the face of new competition.”

High-end Residential
The overall sales volume for high-end residential units decreased in the last quarter of 2011.
Primary sale transactions for high-end residential developments were severely affected in 2011 with the introduction of strict home-purchase policies. Developers of high-end residential projects only managed an overall sales rate of 31%, as compared to 70% in 2010. This is likely to continue throughout 2012 as the policy was renewed on 31 December 2011 for a further unspecified period.

Price decreases begin to be more entrenched as tightening policies remain in place. The government home-purchase restrictions have finally had a noticeable effect on high-end residential developments and their sales rates. Based on Jones Lang LaSalle’s basket of high-end residential properties prices, asking prices show a 1.1% decrease over 4Q11. With price decreases continually being seen for a couple of months in the mass market segment, high-end residential developments will likely face increased pressure to decrease prices in the coming months. In the secondary market, after months of widening gaps between sellers' and buyers' price differential, asking prices are finally declining as sellers become more motivated to dispose their properties due to the fear of further price reductions across the country.

Discontent from buyers of early phases are leading to increased divergence in sales strategy. Like Shanghai, buyers of earlier development phases in Qingdao are experiencing discontent after developers reduced sale prices for subsequent phases. In order to avoid this scenario, large-scale developers with strong finances are trying to hold on to previously high launch prices, especially for developments in prime locations. Any given discounts are likely to be small and on a case-by-case basis.  Smaller developers with less leeway to manoeuvre in light of the current credit squeeze will continue to reduce prices with hopes of increasing sales.