Shanghai Q4 2012

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1 Property Times Shanghai Q4 2012 Office occupancy remains stable hh 15 January 2013 The average grade A office rent in Shanghai reached RMB 8.78 (US$1.40) per sq m per day as of end of Q4 2012. The citywide availability ratio remained at Contents 7.35%. Economic Overview 2 Rent in the five selected retail hubs showed an increase of 2.81% quarter-on- Office 3 quarter (q-o-q) to reach RMB 59.46 (US$9.51) per sq m per day. The occupancy rate in the five selected retail hubs increased from 91.26% in Q3 to 92.05% in Retail 4 Q4, up 0.79% q-o-q but down 3.59% year-on-year (y-o-y). Industrial & logistics 5 The overall industrial rental growth moderated across the board, reaching RMB Residential 6 57.64 (US$9.22) per sq m per month. Meanwhile, the total availability ratio in Investment 7 the market remained stable at 8.32%. Transaction volume for high-end residential property amounted to 174,181 sq m, a decrease of 14.1% q-o-q but an increase of 51.1% y-o-y. The average price Authors of non-serviced apartments saw a slight rebound from RMB 58,172 (US$9,308) Steven Cheng per sq m to RMB 58,678 (US$9,388) per sq m, a gain of 0.87% q-o-q and a loss Assistant Manager, Research of 1.30% y-o-y. The average price of high-end villas decreased 2.16% q-o-q and [email protected] 5.46% y-o-y to RMB 50,081 (US$8,013) per sq m. Figure 1 Ray Zhang Assistant Manager, Research DTZ grade A office index (Q1 2005=100) [email protected] 230 210 Contacts 190 Shaun Brodie 170 Head of East China Research 150 Head of China Strategy Research 130 [email protected] 110 David Ji 90 Head of Greater China Research 70 [email protected] 50 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2017F Hans Vrensen Global Head of Research Grade A office rental Grade A office price [email protected] F=Forecast Source: DTZ Research DTZ Research

2 Shanghai Q4 2012 Table 1 Economic Overview Economic indicators Shanghais Q3 GDP grew by 7.4% to reach RMB 14,374 billion (US$2300bn). Disposal income per capita hit RMB 30,205 Indicator Period Unit Value Change (US$4,833) in Q3 2012, an increase of 11.5% y-o-y (Table 1). y-o-y (%) From January to November 2012, total industrial output GDP Q3 2012 RMB 100 14,374.23 7.4 (above a designated size) accumulated to reach RMB 2,870 million billion (US$459bn), a 1.0% y-o-y decrease (Table 1). Total Jan Nov RMB 100 28,700.90 -1.0 industrial 2012 million From January to November 2012, real estate investment output increased 7.7% y-o-y to reach RMB 215 billion (US$34bn). (above a Meanwhile, investment in the residential sector grew by just designated 0.1%, and the growth rate in the office sector was about 9.6%. size) The retail sector gained 34.3% y-o-y (Table 1). Disposable Q3 2012 RMB 30,205 11.5 Shanghais consumer price index (CPI) in November reached income per 102. CPI decreased by 2.0% y-o-y (Table 1). capita FDI utilised Nov 2012 US$100 144.11 19.7 In November utilised foreign direct investment (FDI) increased million by 19.7% y-o-y to reach US$144 million (Table 1). Real estate Jan Nov RMB 100 2,150.07 7.7 investment 2012 million Consumer Nov 2012 - 102.0 2.0 price index Source: Shanghai Statistics Bureau Property Times 2

3 Shanghai Q4 2012 Table 2 Office Grade A office market statistics This quarter, the Shanghai grade A office market witnessed District Total Availability Average Change no new supply, thus the overall grade A office stock stock ratio (%) Rental q-o-q remained at 5,766,469 sq m (Table 2). Net absorption (sq m) (RMB/sq m/ (%) stayed low at 86,000 sq m compared to the same time last day) year, implying a rather sluggish leasing market amid a consensus that economic recovery is underway. The Pudong 2,106,268 5.65 8.84 1.76 citywide availability ratio dropped to 7.35%, mainly due to Hongkou 146,302 43.69 5.69 -2.15 an improvement in net absorption in Lujiazui and Zhuyuan. However, our view is the overall availability ratio will Huangpu 1,054,968 6.62 9.26 -0.29 fluctuate at the current level in the short term, with new Zhabei 181,612 17.63 6.25 2.04 supply expected to enter the market gradually. As for the medium term, citywide availability will increase, given the Jingan 708,475 3.41 11.45 -3.08 large amount of future supply (Figure 3). Changning 821,938 6.84 7.80 0.79 Shanghais overall rent remained steady, with 0.26% q-o-q Xuhui 622,906 3.55 8.90 1.42 growth in Q4. However, y-o-y growth continued to slow, Putuo 66,000 20.00 5.00 - down from 4.92% to 3.14% in Q4 (Figure 2), implying downside risks in the global economy, putting pressure on Minhang 58,000 40.00 4.00 - corporations budgets and finances. Going forward, a Overall 5,766,469 7.35 8.78 0.26 moderate rent correction is anticipated in the short term, Note: Rental equals Gross Transacted Face Rental accompanied by a cautious growth outlook in the medium Source: DTZ Research term. Figure 2 The global economy, especially in Europe and the United DTZ grade A office index (Q1 2005=100) 230 States continues to face many challenges. As such, investors 210 could become more cautious and risk-averse in the office 190 market. In fact, prime office yield has gone up slightly from 170 2011, indicating a short-term downside risk in the 150 commercial property sector. Quantitative easing 130 programmes appear to have increased the risk in various 110 investment tools. 90 70 50 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2017F Grade A office rental Grade A office price F=Forecast Souce: DTZ Research Figure 3 Availability ratio, supply and net absorption, sq m (000s) 2,500 35% 30% 2,000 25% 1,500 20% 15% 1,000 10% 500 5% 0 0% 2005 2007 2009 2011 2013F 2015F 2017F New supply Net absorption Availability ratio F=Forecast Souce: DTZ Research Property Times 3

4 Shanghai Q4 2012 Table 3 Retail High-end retail market statistics This quarter, Agile International Plaza, Park Place Reel and IFC (Phase II) were completed, pushing total high-end stock to Retail hubs Total stock New Average q-o-q 1,985,552 sq m (Table 3). (sq m) supply rental change (sq m) (RMB/sq m (%) Rents in five selected retail hubs increased 2.81 percentage /day) points to RMB 59.5 (US$9.51) per sq m per day (Table 3). This marks the fourteenth consecutive q-o-q increase for high-end Lujiazui 617,378 10,000 44.7 1.52 retail rental in our five selected downtown retail hubs. Nanjing East 417,628 22,000 59.8 1.87 Rd On Nanjing West Road in particular, several sites are now under construction and will be completed in the near future, Huaihai 365,292 -10,000 51.8 3.98 including 688 Nanjing West Road, the Jingan Temple Middle Rd Transportation Center, Jingan Kerry Center and Eco City. Park Nanjing 319,895 34,000 84.8 2.11 Place Reel was recently opened and features major retailers West Rd Gucci and Ralph Lauren. In Plaza 66, several major international retailers are renovating their stores. Xujiahui 265,359 - 71.6 1.99 The occupancy rate in our five selected retail hubs increased Overall 1,985,552 56,000 59.5 2.81 from 91.26% in Q3 to 92.05% in Q4, up 0.79% q-o-q but down Source: DTZ Research 3.59% y-o-y. Considering the opening of several new shopping centres, the improved occupancy rate and the rent increase Figure 4 indicate a better operating environment for high-end retailers. DTZ high-end retail index (Q1 2006=100) 130 The recently held 18th National Congress of the Communist 125 Party set for the first time resident per capita income as an 120 economic growth target, which is a good indicator that the government is looking to push domestic consumption as an 115 economic growth driver of the future. We can also observe 110 from National Bureau of Statistics data that in the first three 105 quarters of this year, China's retail sales surpassed investment for the first time in driving the growth of the economy. This all 100 bodes well for the retail market, and in particular the Shanghai 95 retail market, in the future. 90 2006 2007 2008 2009 2010 2011 2012 Source: DTZ Research Table 4 Selected high-end retail future supply Retail hubs Selected projects Estimated launch date Nanjing West Rd Jingan Kerry Center 2013 Huaihai Middle Rd ICC 2013 Source: DTZ Research Property Times 4

5 Shanghai Q4 2012 Table 5 Industrial & Logistics Industrial market statistics Data released by the Shanghai Statistics Bureau showed the citys industrial production reaching RMB 264.7 billion Total stock Availability Rental (US$42.4 bn) in November, growth of 1.8% month-on-month. (sq m) ratio (%) (RMB/sq Meanwhile, the citys producer price index remained negative, m/month) down 1.9% y-o-y. However, the fall was slower, indicating pressure from inflation on the production side was largely R&D office 4,367,514 13.71% 103.42 under control. Manufacturers continued to benefit from the Warehouse 3,497,672 9.48% 37.71 low price of raw material. Overall, the economic data suggests that Shanghais industrial activity stabilised in Q4. Manufactory 9,626,933 5.45% 31.94 Overall 17,492,119 8.32% 57.64 According to the Shanghai Land and Resource Bureau (as of 12 December 2012), a total of 61 industrial land parcels were transacted with an average transacted price of RMB 925.2 (US$ Source: DTZ Research 148.0) per sq m recorded, up significantly q-o-q. In addition, Figure 5 the total land sale value for these 61 plots amounted to around RMB 1.72 billion (US$275.2 million), with total transacted area DTZ industrial index (Q1 2006=100) reaching 1.86 million sq m. 150 140 Overall, the average industrial rent rose slightly, reaching RMB 130 57.64 (US$9.22) per sq m per month, up 1.16% q-o-q (Figure 5). R&D office rents climbed 2.1% q-o-q to reach RMB 103.42 120 (US$16.55), while manufactory and warehouse rents remained 110 stable at RMB 31.94 (US$5.11) and RMB 37.71 (US$6.03) per 100 sq m per month respectively (Table 5 and Figure 5). In terms of y-o-y growth, rent for manufactory regained its momentum, 90 up 4% compared with 2% in the first half of 2012, while 80 warehouse rents slowed to 0.8%. R&D office rents continued 2006 2007 2008 2009 2010 2011 2012 to benefit from industrial restructuring and the emergence of Source: DTZ Research service manufacturing, thus rental growth remained strong at Figure 6 11.5% y-o-y. Industrial rent as of Q4 2012 Finally, vacancy for manufactory in Q4 remained high at 5.45%, 120 down 0.10% q-o-q, while vacancy rate for warehouse increased 0.51% to 9.48%. Vacancy for R&D office dropped 100 slightly to 13.71%, a similar level to that seen one year ago. 80 60 40 20 0 R&D Office Warehouse Manufactory Source: DTZ Industrial Property Times 5

6 Shanghai Q4 2012 Table 6 Residential High-end residential market statistics According to China Index Academy, the average home price in 100 Chinese cities rose for the sixth straight month in New Transaction Price Rental November. With improved sales and access to bank credit, supply volume (RMB/sq (RMB/sq major developers became active again and this pushed land (sq m) (sq m) m) m) prices to increase more than 10% y-o-y in October. Non-serviced - 127,179 58,678 114.3 However, according to a statement issued in mid-December apt after the central economic work conference, China will Serviced apt - - - 247.9 continue its property market control policies next year. The country will continue increasing the supply of low-income Villa 33,156 47,002 50,081 89.8 housing, as well as the renovation of run-down areas. Official announcement of the future nationwide property tax also Note: Data as of 17 December 2012 came in December. Source: DTZ Research In Shanghai, total transaction volume of high-end residential Figure 7 property amounted to 174,181 sq m, down 14.1% q-o-q but up 51.1% y-o-y. The Q4 transaction volume of high-end non- DTZ high-end residential index (Q1 2006=100) serviced apartment properties declined by 23.5% q-o-q, from 210 157,096 sq m to 127,179 sq m (Table 6). However, the 190 transaction volume of high-end villa properties saw a 3% q-o-q increase, from 45,654 sq m to 47,002 sq m. 170 150 The average price of non-serviced apartment saw a slight 130 rebound from RMB 58,172 (US$9,308) per sq m to RMB 58,678 110 (US$9,388) per sq m, a gain of 0.87% q-o-q and a loss of 1.32% 90 y-o-y. The average price for high-end villas decreased 2.16% q- 70 o-q to RMB 50,081 (US$8,013) per sq m. Compared with the 2006 2007 2008 2009 2010 2011 2012 average price one year ago, the average villa price is still 5.77% High-end residential rental High-end residential price lower than in Q4 2011. Note: Data as of 17 December 2012 Souce: DTZ Research In the leasing market, high-end residential rent saw a slight Figure 8 decrease when compared to Q3. The average rental of non- High-end non-serviced apartment price by district as of Q4 serviced apartments fell 1.93% q-o-q to RMB 114.3 (US$18.3) 2012, RMB/sq m per sq m, while the average rent of villas fell 3.02% to RMB 100,000 89.8 (US$14.4) per sq m. Finally, the average rental of serviced apartments fell 1.23% to RMB 247.9 (US$39.7) per sq m. 80,000 Going forward, the transaction volume and the slight rebound 60,000 of the average high-end residential property price in Shanghai reflect strong market demand. However, due to the 40,000 governments firm stance on price control, we expect the Shanghai high-end residential market to experience little 20,000 fluctuation in price. 0 Huangpu Jing'an Xuhui Changning Hongkou Pudong Note: Data as of 17 December 2012 Souce: DTZ Research Property Times 6

7 Shanghai Q4 2012 Table 7 Investment Total number of major deals As of 12 December 2012, the total number of land and en-bloc Q4 2011 Q3 2012 Q4 2012 transactions in Shanghai (with a unit value of more than US$10m) had reached 53, a surge from last quarter and a 24% Residential 16 10 29 rise when compared to the same time last year (Table 7). Office 4 4 8 The residential sector regained its momentum due to more Industrial 7 11 5 residential land being released by the government. The industrial sector softened in Q4, with a total of five investment Retail 1 - 3 transactions recorded so far. The number of transactions, Mixed use 12 5 8 however, was still down from a year ago. Mixed use land picked up moderately from last quarter, totalling 8 transactions. Others - - - The retail sector continued to see stable growth, with a total of Total 42 30 53 three deals transacted, while in Q4 2011 one transaction was recorded. The overall investment picture was more or less Source: DTZ Research optimistic, confirming improved market sentiment on the back Table 8 of a gradual economic recovery. Total consideration of major deals (RMB million) Total consideration picked up dramatically to RMB 30.57 billion (US$4.89bn) in Q4 as compared with the last quarter and a y-o- Q4 2011 Q3 2012 Q4 2012 y growth of 7% (Table 8). Accompanied by a surge in the total number of residential transactions, total investment value in Residential 7,811 3,222 12,550 residential jumped. The recovery seen in the office sector Office 7,681 3,213 7,774 suggests renewed interest from investors after market sentiment dropped in Q3. Mixed use deals recorded a Retail 644 1,885 2,700 significant turnaround q-o-q with a major deal of a 10ha plot Industrial 201 1,521 800 near Shanghai South Railway Station jointly purchased by Vanke, Greenland and associates for a total consideration of Mixed 12,243 1,135 1,320 RMB 5.43 billion (US$868.96mil). Overall, we saw investment Others - - - sentiment bottom out in Q3 and momentum regained in Q4, with more foreign purchasers entering the market. Total 28,579 9,455 30,575 Table 9 Source: DTZ Research Significant deals Price Property type Submarket Sector (RMB million) CITIC Shipyard Project (One block) Pudong Lujiazui Office 1,750 Plot 03B-12, 03B-13 Jiading District Residential 1,025 Jiading Nanxiang Township Plot Jiading District Mixed use 82.00 Source: DTZ Research Property Times 7

8 Shanghai Q4 2012 Definitions Availability: Total floor space in properties marketed as available to let, whether physically vacant or occupied, and ready for occupation immediately. Availability Ratio: Total space currently available as a percentage of the total stock of floor space. Development Pipeline: Comprises two elements: Floor space in course of development, defined as buildings being constructed or comprehensively refurbished to grade A standard. Schemes with the potential to be built in the future, through having secured planning permission/development certification. Net Absorption: The change in the total of occupied floor space over a specified period of time, either positive or negative. New Supply: Total marketed grade A floor space which is ready for occupation now. Ready for occupation means practical completion, where either the building has been issued with an occupancy permit, where required, or where only fit-out is lacking. Prelet: A development leased or sold prior to completion. Prime Rent: The highest rent that could be achieved for a typical building/unit of the highest quality and specification in the best location to a tenant with a good (i.e. secure) covenant. (NB. This is a net rent, excluding service charge or tax, and is based on a standard lease, excluding exceptional deals for that particular market.) Rent: Gross transacted rents (unless otherwise specified), which excludes management fees and other outgoings. Prime Yield: The best (i.e. lowest) yield which could be expected for a typical building/unit of the highest quality and specification in the best location leased to a tenant with a good (i.e. secure) covenant. (NB. This is a net yield, which uses net income, after deducting all non-recoverable expenditure, divided by the purchase cost, excluding transaction costs and taxes.) Market Yield: Annual transacted rent as a percentage of the capital value of the property. Stock: Total accommodation in the commercial and public sectors both occupied and vacant. Take-up: Floor space acquired for occupation, including the following: (i) offices let/sold to an eventual occupier; (ii) developments pre-let/sold to an occupier; (iii) owner occupier purchase of a freehold or long leasehold. (NB. This includes subleases but excludes lease renewals.) Vacancy: Floor space that is empty, i.e. not occupied. It may be being marketed, or it may not (whether because a lessee is not occupying, it is being refurbished or it is deliberately being left empty by the landlord). Property Times 8

9 Shanghai Q4 2012 Other DTZ Research Reports Other research reports can be downloaded from These include: Occupier Perspective Insight Updates on occupational markets from an occupier Thematic, ad hoc, topical and thought leading reports on perspective, with commentary, analysis, charts and data. areas and issues of specific interest and relevance to real estate markets. Global Occupancy Costs Offices 2012 Obligations of Occupation Americas 2012 Great Wall of Money October 2012 Obligations of Occupation Asia Pacific 2012 Property Market Correlations October 2012 Obligations of Occupation EMEA 2012 J-Reit October 2012 Rise of City Clusters September 2012 Singapore Luxury Condominiums September 2012 Property Times China Hongqiao Transportation Exchange June 2012 Regular updates on occupational markets from a landlord Global Debt Funding Gap May 2012 perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Bangkok, Beijing, Berlin, Brisbane, Bristol, Brussels, Budapest, Central London, Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt, Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, Hong DTZ Research Data Services Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, Madrid, Manchester, Melbourne, Milan, Nanjing, For more detailed data and information, the Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, following are available for subscription. Please Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, contact [email protected] for more Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian. information. Property Market Indicators Investment Market Update Timely series of commercial and industrial Regular updates on investment market activity, with market data in Asia Pacific and Europe. commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Real Estate Forecasts, including the DTZ Republic, Europe, France, Germany, Italy, Japan, Mainland Fair Value Index China, South East Asia, Spain, Sweden, UK. Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Europe and the USA. Money into Property For more than 35 years, this has been DTZ's flagship Investment Transaction Database research report, analysing invested stock and capital flows Aggregated overview of investment activity into real estate markets across the world. It measures the in Asia Pacific and Europe. development and structure of the global investment market. Available for Global, Asia Pacific, Europe and UK. Money into Property DTZs flagship research product for over 35 years providing capital markets data Foresight covering capital flows, size, structure, Quarterly commentary, analysis and insight into our in- ownership, developments and trends, and house data forecasts, including the DTZ Fair Value Index. findings of annual investor and lender Available for Global, Asia Pacific, Europe and UK. In intention surveys. addition we publish an annual outlook report. Property Times 9

10 DTZ Research Contacts Consultancy Property Management Michael Ma Chris Cheung Phone: +86 21 2208 0381 Phone: +86 21 2208 0699 Email: [email protected] Email: [email protected] Industrial Investment Tony Su Jim Yip Phone: +86 21 2208 0255 Phone: +86 21 2208 0250 Email: [email protected] Email: [email protected] Office Building Consultancy Leon Fu Anthony Ng Phone: +86 21 2208 0562 Phone: +86 21 2208 0168 Email: [email protected] Email: [email protected] Residential Retail Jenny Wu Raymond Wei Phone: +86 21 2208 0218 Phone: +86 21 2208 0230 Email: [email protected] Email: [email protected] Valuation Hans Gu Phone: +86 21 2208 0503 Email: [email protected] DISCLAIMER This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. DTZ 2013 Property Times 10

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