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REAL ESTATE: Central Tianjin Real Estate Market 2014 Review
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Central Tianjin Real Estate Market 2014 Review

By Durrell Mack, Head of Research, JLL - Tianjin

The commercial real estate market in central Tianjin, which is comprised of Heping, Nankai, Hexi, Hedong, Hebei, and Hongqiao Districts, has grown substantially in the last year in terms of both quality and quantity. While much of the media focus has been on the quantity of new office towers and shopping malls in Tianjin, little attention has been paid to the quality and the need for better commercial real estate in the city. Looking at the myriad of new commercial properties from office towers to shopping malls to hotels, the majority of the new commercial real estate stock is transforming Tianjin into a better place to work and live for all of its residents.

BT 201501 27 Real Estate 3ef6db07New supply of Grade A and better quality Grade B office towers
New supply of Grade A and B office towers grew by approximately half a million square meters in 2014, increasing total office stock by over a third compared to 2013. While that number seems staggering, in the context of the currently existing office buildings, much of the new supply is needed. Looking at the office towers in central Tianjin, a significant portion were constructed over a decade ago and do not suit the demands of today's modern service sector firms. Many of them lack adequate power supplies and cooling systems for servers, security systems, and overall professional environments. Comparing Tianjin's main business district to Beijing's CBD, the difference in quality becomes dismayingly apparent. Thus, the new office towers are welcome additions to the Tianjin market.

Key projects that have greatly improved the overall quality of the office market are Metropolitan Tower Tianjin and R&F Center, developed by Hutchison Whampoa Property and R&F Properties, respectively. Metropolitan Tower Tianjin is located on Nanjing Road in the city's most important commercial area, and is the only Grade A office tower to be completed in the last three years. Located next door to the city's landmark Exchange Towers, it has already seen strong levels of demand due to its superior specifications and convenient subway access atop lines one and three. R&F Center is located in Xiaobailou and, although it is considered Grade B, the rate of leasing has been rapid as a result of its quality outclassing all other buildings in the Xiaobailou submarket.

The improved quality in the market has given office tenants many more options to choose from and has caused some landlords to worry about rental levels. Overall, the office leasing market has turned extremely tenant-favorable for companies looking to establish a presence in the city. However, for landlords who own premium office towers, there is still room to push up rents. Although quality in the market improved in 2014, premium space is still scarce; so for confident landlords of top projects, rents can still go up. Tianjin office rents are relatively cheap, especially compared to Tier 1 cities, such as Beijing.

Shopping malls displace department stores

The quality of the retail in the city has improved each year with more brands entering the market every month. Many of these new retailers are taking space in shopping malls and some of the historic buildings that are ubiquitous throughout the city.

BT 201501 26 Real Estate tianjin 11Two shopping malls that opened in 2014 that were well received by retailers and shoppers alike were Riverside 66, developed by Hang Lung Properties, and Aeon Shopping Center in Meijiang. Both shopping malls host popular fast fashion, such as H&M, GAP and Uniqlo, have a bevy of food and beverage options (F&B), and house high-end supermarkets featuring items that are not easily found in many of the local hypermarkets; the enticing tenant mixes of these two malls are indicative of why shopping centers are displacing traditional Chinese department stores as the most popular retail destinations.

Riverside 66, located on Heping Road at the northern end of Binjiang Avenue, is already disrupting the customer flows and business models of the department stores around it. For example, many of the department stores along Binjiang Avenue have undergone repositionings and upgraded their tenant mixes in order to stay relevant under the pressure of new competition. In addition, Tianjin Quanyechang, located across the street from Riverside 66 and one of Tianjin's longest operating department stores, added new F&B brands to its basement in order to attract and retain a younger crowd of shoppers.

It is still too early to determine whether or not the incumbent department stores in the city can keep up with their new challengers, but the future for department stores is looking bleak as shopping malls, such as Riverside 66, Joy City and Galaxy International Shopping Center, draw away shoppers and attract the new and exciting retail brands that are not easily purchased online.

The city's historic buildings have also been given new life by retailers. The Sheng'ao Commercial building, located next to Riverside 66, is now a four-floor flagship Zara store, and Xiannong Block is now one of the most popular destinations in the city for F&B, particularly amongst foreigners.

The rise of more retail options in Tianjin has certainly made the city a more enjoyable place in which to live, especially on a cold polluted winter night.

BT 201501 25 Real Estate hlMore five-star hotels should mean better service

The city has experienced an explosion of five-star hotels over the past two years, and 2014 was no different with three five-star hotel launches within mere months of each other, the Hyatt Regency Tianjin East, Shangri-La and Pan Pacific. While hotel general managers are concerned about so much new competition with so many great options to choose, for tourists, and even locals, this is a great time to be in Tianjin. There are few places in the world where you can stay at the St. Regis or the Shangri-La for around USD 100 a night. Moreover, hotels tend to improve the overall service quality of a city, as they provide extensive training programs for their staff and have stringent guidelines and protocols. This is certainly a boost for Tianjin, a city that has notoriously abhorrent customer service.

Much like trickledown economics, trickledown better service should result as more people become accustomed to going to places where service is polite and respectful. Customers will start visiting places, such as hotels, where they know the service quality is better, and this will require other establishments in the city to follow suit in offering improved service.

BT 201501 28 Real Estate 153053858Tianjin's future is looking bright

In the past year, Tianjin has become a better place in which to live and work, especially from a real estate perspective, and 2015 will be more of the same. Vantone Center is anticipated to open in September and will be central Tianjin's first pre-certified LEED gold office tower. In addition, the shopping centers, Metropolitan Plaza Tianjin and Riverview Place Tianjin, are expected to open in the first half of the year and provide new retail brands and experiences for shoppers. The Four Seasons hotel will also be making its debut in the latter half of the year. Competition in the city is intensifying, and that means that customers will benefit. For people living and working in Tianjin, it is undoubtedly a great time to be in the city.

For landlords of commercial real estate projects, it will be those who stay innovative and look to improve the quality of their services and products that will be able to increase rents and rates, in spite of the new supply. While times will be difficult for projects of lower quality, landlords of premium assets should find a receptive market despite an influx of supply.


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