April 18, 2012 Beijing – CBRE released China Real Estate MarketView Q1 2012 recently. According to this report, during the first quarter of 2012, office rents in China basically maintained continued growth. Beijing has been leading the group with an impressive 10.6% q-o-q rent growth, while for Tianjin, Qingdao, Guangzhou, Chengdu, and Chongqing, the vacancy rates stayed at relatively high level, and the growth is limited due to large new supply.
In the residential market, the price signals have further reflected the ripple effect of government regulations. The average price of luxury apartments declined slightly in all the fifteen China cities during the first quarter except for Shenyang, which enjoyed an astonishing price increase. The retailed market remained active. The rents of some cities dropped, due to the rental improvements in new CBDs and opening of new projects, but most of the fifteen cities witnessed a stable upward trend. The rapidly developing e-commerce and logistics sector have been generating constant new demand for logistic facilities, and rents for logistics facilities saw a widespread q-o-q increase in all of the cities.
Northern China Region
During the 1Q 2012, we saw diverse market performance of all 5 Northern cities. Beijing has been leading the group with an impressive 10.6% q-o-q rent growth. The vacancy rate also dropped to the historical low of 5%. Shenyang and Qingdao are experiencing market upgrade with decent rent growth, 2.7% and 6.7% q-o-q respectively. But for Tianjin and Dalian, the growth was limited. Large new supply exerted pressure on couple of markets such as Tianjin and Qingdao, both had vacancy rate staying at relatively high level of 17.7% and 15.2% respectively.
The ripple effect of government regulations on the residential market has been further witnessed for most of the Northern China markets. In this quarter, most Northern cities had limited price change of luxury apartments. As an exception, Shenyang enjoyed an astonishing price increase of 8.2% q-o-q, most coming from high quality new projects. Dalian had a substantial price drop of 1.9% q-o-q, more than most of the other cities. In the leasing market, rental growth for luxury apartments was registered in all markets of which Beijing had the largest apartment rental growth of 2.4% q-o-q.
The retail market remained active for all 5 Northern cities. New projects opened in most of the markets, limiting the market average rental growth. Tianjin and Beijing were the two markets that were affected by large amount of new supply and had vacancy surging to 13.5% and 12.6% respectively. Within the period under review, except minor rental decrease in Shenyang, rents have increased for all other cities in a range of 0.5% to 1.2% q-o-q.
The rapidly developing e-commerce and logistic sector have been generating constant new demand for logistic facilities. The active land and leasing transactions have demonstrated a promising future of the logistic property market. During the 1st quarter of 2012, logistics rents in all five cities of north China showed q-o-q increases from 0.4% to 2.4%. Meanwhile the new industrial space has been undersupplied, and the rent was pushed up, such as Shenyang, the rent for industrial space has increased 4.4% q-o-q.
Eastern China Region
During the first quarter of 2012, growth of office rents was recorded across all east China cities. The average rent rose moderately q-o-q by respectively 2.2% in Nanjing, 4.1% in Hangzhou and 1.0% in Ningbo, mainly driven by the rental improvements seen in new CBDs in those cities. Rental growth in Shanghai further geared down, with the average rent rising by only 0.5% q-o-q. Due to the rising competition from decentralized offices and complexities the global economy is undergoing at present, not a few landlords of quality buildings in core submarkets has held their quotations flat or even softened slightly in negotiation during the first quarter.
With most of the developers implementing small price discounts or other preferential conditions in order to boost sales, the average price of luxury apartments declined slightly in all the four east China cities during the first quarter. In comparison, leasing market became more active backed by the return of expatriates after the Spring Festival, the luxury apartment rent rose across the region with the growth rate between 0.1% and 1.4% q-o-q.
Retail property market was active in east China. Global retailers kept on looking for suitable space in prime retail locations and renowned brands such as Gucci, Prada and Dior were noticed to set up new stores in the region. Market availability remained fairly limited across the four cities due to the supply drought. The average ground floor rent increased respectively by 1.1% in Shanghai, 2.1% in Hangzhou, 2.7% in Nanjing and 1.7% in Ningbo.
The industrial property markets remained stable in the Yangtze River Delta. Within the quarter under review, rents for logistics facilities saw a widespread q-o-q increase in the four cities by 2.6%, 1.1%, 4% and 2.9% for Shanghai, Hangzhou, Nanjing and Ningbo.
Southern China Region
During the first quarter of 2012, office rents in both cities of south China witnessed continued growth. Rental growth in Guangzhou geared down further to 0.5% as a result of substantial supply in Pearl River New City since last year and the currently global economy uncertainties, while rent in Shenzhen increased significantly by 3.2% driven by the fight-to-quality trend and the launch of Kerry Plaza Phase 2 – the most expensive office building so far in the city.
Luxury apartment price was basically unchanged with low transactions in Guangzhou as wait-and-see sentiment still prevailed over both the landlords and buyers. In Shenzhen, some developers were seen to offer discounts to boost sales while some other projects were launched for sales at a lower-than-expected price. The average luxury apartment price in Shenzhen thus decreased 2.8% q-o-q.
Both Guangzhou and Shenzhen witnessed no new completion in retail property market and consequently the decrease of vacancy rate in this quarter. Rent in Guangzhou increased marginally, while tenant adjustment and rent review in some major malls in Shenzhen, contributing to a 3.8% rental growth,
Within the quarter under review, logistics facility rents were basically stable in Guangzhou and Shenzhen. Manufacturing companies remained a key demand drive while demand from e-commerce and trading sectors has been on the rise.
Central & Western China Region
In central and western China, office new supply has been increasing across all cities in the region. Vacancy rates in Chengdu and Chongqing were kept above 20%, while only slight rental growth by 1.1% and 0.3% respectively was recorded in the first quarter of 2012. Quality office space in Xi’an remained undersupplied, which drove the office rent to grow q-o-q by 5.0%.
During this quarter, retail rents basically remained stable in Chengdu and Wuhan, while both Xi’an and Chongqing saw some rental decrease due to the opening of new projects with relatively low rent. Global retailers continued to extend their footprint into this booming region, with brands such as Tiffany, Sephora, Marks & Spencer and Zara all adding new stores in central and western China cities within the period under review.
In the luxury residential market, sales have been activated more or less since March by price discounts offered by increasing number of developers and lowering of mortgage interest rate for first-home buyers in some cities. The average luxury apartment price therefore dropped in three of the four cities in the region except for Chongqing where price remained stable.
Coast-to-inland industry transfer and the growth of domestic consumption generate sustainable demand for quality logistics facility space in urban hubs of central and west China. Domestic and international investors have demonstrated keen interest in developing logistics facilities in cities such as Chengdu and Chongqing during this quarter, and the logistics facility rent generally witness a stable and upward trend in all the four cities.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2011 revenue). The Company has approximately 34,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
