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REAL ESTATE: Real Estate Leads the Way in Tianjin’s Transformation
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When we published our first World Winning Cities profile in 2006, Tianjin was a city with a strong but generic industrial base, a decent port and some tired real estate stock. Since then, all three commercial real estate sectors that Jones Lang LaSalle tracks – logistics, retail and office – have undergone dramatic changes. The logistics sector has quickly modernised, as more international developers have come to Tianjin, giving domestic players more competition. The retail sector has gone from a largely department store dominated environment to one where shopping malls are becoming the preferred retail format. The office sector now has the iconic Tianjin World Financial Centre with more new skyscrapers expected to dot Tianjin’s rapidly changing skyline. 

 

 Office

The Tianjin office market has grown in size and geographic reach over the past five years, albeit from a low base. Within the central city, its four major office submarkets - Nanjing Road, Xiaobailou, Youyi Road and Haihe Riverside - are home to the prime office buildings and key MNC and domestic tenants.

 

Overall, domestic firms are providing the strongest leasing demand in the Tianjin market, while MNC and domestic financial institutions and professional services firms have driven demand for Grade A office space as they seek to open branch offices in Tianjin as the city expands as a financial centre for Northern China. Likewise, as the city develops as a logistics hub, shipping and logistics firms along with trading companies have also provided a steady demand for office space. Most companies’ preferences are for new buildings to meet their expansion and upgrade requirements.

 

With the arrival of high specification projects, and given high occupancy rates in existing projects, average office rents grew by 4.4% in 2012 to stand at 127 CNY per sq metre per month. Future rental growth will depend upon how tenants perceive the quality and location of new projects. There is currently a lack of wholly-owned and well-managed offices to choose from, and most buildings are sold as strata-title – thus restricting the type of space sought by MNCs.

 

Over the next few years, Central Tianjin’s office stock will substantially grow in size, but most buildings will be sold strata-title, as many developers either need funds or lack confidence in the market. The Tianjin Binhai New Area will potentially add a large amount of new space; however, most observers don’t expect this supply to impact Central Tianjin’s market. If the economy, and especially the service sector, continues to grow strongly, there could be a significant increase in demand for office space, helping to boost rental growth, despite large amounts of space being completed both in the city and the TBNA. The final outcome is less than clear and will depend both on how developers approach the market and the level to which occupiers are concerned with the ownership and operational structure of new buildings.

 

Retail

Prime-quality retail projects are currently distributed in six submarkets of Central Tianjin: Binjiang Avenue and Heping Road (pedestrianised streets), Nanjing Road, Xiaobailou, Youyi Road and Old Town Area. While Nanjing Road and the pedestrianised streets are still considered to be the premier retail precincts (with the highest footfall), the Old Town area, with three new shopping centres opened in 2011 and an upcoming Parkson’s Department Store (totalling 275,000 sq metres), is quickly emerging as a major retail submarket as it attracts a greater share of retail traffic.

 

International developers and operators such as Lotte Group from Korea, SM Supermalls from the Philippines, and Hang Lung and Hutchison Whampoa from Hong Kong, have all entered the Tianjin retail market, introducing a number of large-scale shopping centres that feature imaginative designs and layouts. As a result, shopping centres with a more comprehensive retailer mix are beginning to make up a larger proportion of the market, compared to older traditional department stores that, for example, provide limited food and beverage facilities.

 

Since 2007, international retailers such as, Zara, H&M, C&A, Louis Vuitton, Chaumet, Salvatore Ferragamo and BottegaVeneta, have been drawn by Tianjin’s strong spending power and growth potential, and have made their debuts in different projects in the city; this has elevated pre-commitment rates in most of the new retail malls.

 

The market’s incumbent players are now shifting their focus into enhancing the shopper experience and, as a consequence, Tianjin’s retail offer is beginning to catch up with its economic development trajectory.

 

altLogistics

It was not until 2007 that Tianjin’s logistics market started to witness any notable increase in new supply, boosted by the arrival of a number of international logistics developers including Gazeley, GLP and Mapletree, and their involvement in some significant projects. These and other international players have not only brought higher construction standards, but also new and more comprehensive logistics services; furthermore, the healthy competition among developers and 3PLs is encouraging an improvement in market transparency and accelerating the maturity of Tianjin’s logistics market.

 

Compared with cities like Shanghai and Beijing, Tianjin’s good transportation infrastructure, its accessibility to other major cities and, most importantly, its lower industrial land and operation costs, are key factors contributing to the city’s attraction for logistics developers.

 

Logistics demand in Tianjin is being generated from companies serving the major manufacturers in industries like petrochemicals, electronics and automotive, and also from retail related players. In particular, e-commerce enterprises, especially B2C or online shopping, are hitting record sales levels in China, and as with other cities, are generating strong demand for the logistics sector in Tianjin.

 

Overall, low vacancy rates and increasing demand for non-bonded space continues to boost the growth of non-bonded rental property which has outperformed that for bonded projects. Several well-known international logistics developers and investors are continuing to seek opportunities to acquire land for new logistics facilities, and although they are primarily focused on Tianjin’s core economic development areas such as TEDA, Xiqing District and the airport area, increasing land scarcity and difficulties negotiating with governments, now mean that they are extending their search across the region. After several months of negotiation with local governments, a few agreements were finally settled in 2012, and these new non-bonded projects will ease the tight supply situation over the next several years.

 

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Outlook

Tianjin’s commercial real estate will continue to improve and undergo a transformation. The city’s new and emerging areas such as the Haihe Riverside, Yujiapu and TEDA will be key focal points for the government and developers alike, helping to bring more first class real estate projects to the city. Contributing to the growth of the commercial real estate sector will be the rise in Tianjin’s economy as new modern service sectors emerge and account for a large portion of the Tianjin economy. A growing service sector will help to ease some of the concerns of sceptics that perceive the city’s office and retail markets as oversupplied.   

 

We understand why the city has its sceptics. When a city of 13 million doubles the size of its modern commercial stock all within just a few short years - it looks like a bubble from almost every angle. However, we have observed that when a city of this size retools, the overcapacity created in the short term can be absorbed in mammoth cycles of take up that follow. Tianjin sceptics will continue to abound, but just as the leaders of Tianjin have finally worked out how to leverage their industrial and population base, investors are positioning themselves to take advantage of one of China’s fastest growing regional economies. The efforts by both the government and the private to cooperate sectors in building up the city will ensure that both sides profit from the transformation in Tianjin’s commercial real estate.


By Michale Hart, Managing Diretor, Jones Lang LaSalle - Tianjin
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