5 6 7 8 9 2010 2011 2012 2012F 2013F 2014F 2015F 2016F Property Times Guangzhou Q3 2012 Residential transactions rebound 15 October 2012 Contents Economic Overview 2 Office 3 Retail 4 Residential 5 Definitions 6 Author Christal Li Head of Central China +86 20 8510 8209 christal.kr.li@dtz.com Contacts David Ji Head of Greater China Research +852 2507 0779 david.yx.ji@dtz.com Matthew Hall Global Head of Forecasting +44 (0)20 3296 3011 matthew.hall@dtz.com Hans Vrensen Global Head of Research +44 (0)20 3296 2159 hans.vrensen@dtz.com Affected by the economic downturn, some enterprises slowed their rate of expansion for offices. The citywide net absorption for Q3 2012 reached 46,600 sq m, a drop of 49% quarter-on-quarter (q-o-q). Zhujiang New Town CBD continued to account for most of the key leasing transactions and pulled down the availability ratio there, a drop of 7.2% q-o-q to 18.7%. Meanwhile, given the large office supply, landlords in Zhujiang New Town CBD offered rental concessions to tenants while rents in Tianhe Sports Center CBD, Dongshan and Yuexiu District remained stable because of limited supply. Therefore, the citywide rental increased by 0.5% q-o-q to reach RMB 164.9 (US$26.0) per sq m per month (Figure 1). In the retail market, affected by the global economic recession, several foreign retailers have postponed their expansion plans. However, retailers from the clothing, shoe, catering and entertainment industries still expanded aggressively. Rental growth slowed slightly after a sharp rental increase in recent quarters. The citywide rent hit an average of RMB 1,274 (US$201) per sq m per month in Q3 2012, a slight increase of 1.2% q-o-q. The city s total transaction volume in the Guangzhou mass residential market increased by 11.6% compared with the last two months, reaching 1.52 sq m in July and August 2012. The sharp increase in sales transaction volume was mainly driven by stable expectations for price and upcoming tightening on first home buyer loans. In particular, transactions in July were the highest for 33 months at 0.8 sq m. As for home price, increasing transactions of high quality residential projects in central districts have driven moderate new home price growth in the mass market. In July and August 2012, citywide residential prices increased by 2.2% q-o-q, reaching an average of RMB 14,056 (US$2,214) per sq m. Figure 1 DTZ office index (Q1 6=) 220 180 160 140 120 80 F=Forecast Source: DTZ Research Office rent Office price DTZ Research
Economic Overview China's central bank announced that it would cut interest rates from 6 July, 2012, the second time in less than a month that the bank has acted to jumpstart a slowing economy. Table 1 Economic indicators Indicator Period Unit Value Change y-o-y (%) GDP Q1-Q2 RMB 6,214 8.3 Affected by external economic conditions, Guangzhou s GDP increased 8.3% year-on-year (y-o-y), reaching RMB 621.4 billion (US$97.86bn) for H1 2012, 2.7 percentage points lower than the same period in 2011 (11.0%) (Table 1). Total industrial output Fixed asset investments Q1-Q2 Jan Aug RMB RMB 9,715 8.2 1,918 7.1 The key economic indicators remained weak, especially total industrial output. From January to August 2012, the accumulative total industrial output (above a designated size) increased by 8.2% y-o-y, reaching RMB 971.5 billion (US$153.0bn), 2.1 percentage points lower than in the same period last year. Meanwhile, fixed asset investment in Guangzhou from January to August 2012 increased by 7.1% y-o-y, reaching RMB 191.8 billion (US$30.2bn), 5.1 percentage points faster than in the same period last year. However, due to the large amount of housing stock, developers decreased the number of new projects, resulting in the growth rate of real estate development investment decreasing. Real estate development investment reached RMB 77.4 billion (US$12.19bn), an increase of 12.5% y-o-y, 20.5 percentage points lower than in the same period last year (Table 1). Real estate FAI FDI utilised Total sales Disposable income per capita Consumer price index (CPI) Jan Aug Jan July Jan Aug Source: Guangzhou Statistics Bureau RMB US$ RMB 774 12.5 30.0 10.3 3,741 13.3 Q1-Q2 RMB 19,730 11.4 August - 102.4 2.4 Guangzhou continues to attract a huge amount of foreign investment. Guangzhou s foreign direct investment (FDI) saw modest growth of 10.3% y-o-y, reaching USD 3.0 billion in the first seven months, 3.1 percentage points faster than the same period of last year (Table 1). The pace of retail sales growth has tapered off and reached RMB 374.1 billion (US$58.9bn), up 13.3% yearly, 3.1 percentage points slower than the same period of last year (Table 1). Meanwhile, the consumer price index (CPI) witnessed a continuing decline in growth, and inflation began to stabilise. The CPI increased by 2.4% y-o-y in August 2012, 0.1 percentage points slower than in July 2012 (Table 1). www.dtz.com Property Times 2
5 6 7 8 9 2010 2011 2012 2012F 2013F 2014F 2015F 2016F Guangzhou Q3 2012 Office No new project was completed in Q3 and total stock of grade A office stood at 2.68 sq m (Table 2). Affected by the economic downturn, some enterprises slowed their rate of expansion. The citywide net absorption for Q3 2012 reached 46,600 sq m, a drop of 49% quarterly. Zhujiang New Town CBD continued to account for most of the key leasing transactions, amounting to 52,500 sq m of the net absorption, a drop of 49% compared with last quarter (Figure 3). Tianhe Sports Center CBD, Dongshan and Yuexiu District had negative net absorption due to tenant relocation. The citywide availability ratio dropped by 2% q-o-q to 10.7%. The effect was particularly significant in Zhujiang New Town CBD, which witnessed a drop of 7.2 percentage points to reach 18.7%, while the availability ratio in Tianhe Sports Center CBD, Dongshan and Yuexiu District stayed at 6.2%, 4.8% and 10.3% respectively. In general, several tenants in some mature districts moved out to new premises in grade B office and pushed up the availability ratio slightly in the short term (Table 2). Given the large amount of office space, landlords in Zhujiang New Town CBD offered rental concessions to tenants, resulting in a rental drop of 0.97% q-o-q to RMB 185.5 (US$29.2) per sq m per month. However, rents in Tianhe Sports Center CBD, Dongshan and Yuexiu District remained stable because of limited supply. Therefore, the citywide rental increased by 0.5% q-o-q to reach RMB 164.9 (US$29.97) per sq m per month (Table 2). The total office transaction volume soared up 45% from last year to 912,000 sq m over the first eight months. Meanwhile, benefiting from improving investment sentiment in Zhujiang New Town CBD, office price there witnessed a sharp increase and pushed up the citywide office price. The DTZ office price index in Q3 2012 was up 0.53% q-o-q (Figure 2). Pearl River Tower is expected to be launched next quarter, providing an additional 167,400 sq m of prime office space. The citywide average rent is expected to remain stable while the availability ratio will increase due to the increasing new supply. Recent Transactions Yeehoo leased 2, sq m in of floor space in G.T. Land (Phase 3), Zhujiang New Town CBD. Table 2 Grade A office market statistics District Tianhe Sports Center CBD Zhujiang New Town CBD Total stock (sq m) Availability ratio (%) Rent (RMB/ sq m/ month) 1,125, 6.2 166.0 1.1 Change q-o-q (%) 898,800 18.7 185.5-0.97 Dongshan 440,600 4.8 128.3 1.9 Yuexiu 218,400 10.3 124.4 4.4 Overall 2,683,000 10.7 164.9 0.5 Source: DTZ Research Figure 2 DTZ office index (6 Q1=) 220 180 160 140 120 80 F=Forecast Figure 3 Availability ratio, supply and net absorption, sq m (000s) 600 16% 500 400 300 0 F=Forecast Office rent Office price 5 6 7 8 9 2010 2011 2012F2013F New supply Net absorption Availability ratio 14% 12% 10% 8% 6% 4% 2% 0% www.dtz.com Property Times 3
Retail Affected by the economic recession, decrease in consumer confidence and slight influence of consumption-stimulating policies, the pace of retail sales growth has tapered off, up 13.3% yearly, 3.1 percentage points slower than the same period of last year, to reach RMB 374.1 billion (US$516) in the first seven months this year (Figure 4). Several foreign retailers have postponed their expansion plans for retail space. However, existing occupiers and newcomers remain keen on expanding their retail space in mature districts. Retailers from the clothing, shoe, catering and entertainment industries still expanded aggressively. For instance, Steve Madden and Dr. Martens leased 600 sq m and 400 sq m respectively in Taikoo Hui. Meanwhile, general merchandise remained one of the major sources of leasing demand. For example, Aeon continued its expansion in large mega-size residential areas and has committed to opening new shopping malls in both Jinshazhou and Zhujiang New Town CBD, with a GFA of,000 sq m totally. In addition, Mopark set up stores with a GFA of 18,000 sq m on Beijing Road and 23,000 sq m in Metropolitan Plaza. Some landlords in Zhujiang New Town CBD and Tianhe Sports Center CBD are looking to optimise the tenant mix and have lowered their rents to attract the most suitable retailers for the positioning of their project. Meanwhile, more occupiers have expressed their resistance to current market rents and the pace of rental growth has tapered off. The citywide rent remained at an average of RMB 1,274 (US$201) per sq m per month in Q3 2012, a slight increase of 1.2% q-o-q after the sharp rental increase in recent quarters (Table 3, Table 4). Supported by strong demand, the low availability ratio still stood at 9%-11% despite the large amount of new supply over the past months. In Q3, the availability ratio reached 9.38%, down 1.1% quarterly. Figure 4 Total retail sales of consumer goods, RMB billion 600 500 400 300 0 * Data for 2012 is as of August Source: Guangzhou Statistics Bureau Table 3 Shopping mall statistics District Total stock (sq m) New supply (sq m) Rents range (RMB/sq m/ month) Tianhe Sports Center CBD 605,000 0 600-3,000 Zhujiang New Town CBD 143,370 0 500-1,000 Yuexiu (Beijing Road/ Huanshidong /Zhongshan San/ Nonglinxia Road) Table 4 Prime projects rental as of Q3 2012 District 4 5 6 7 8 9 2010 2011 2012* Tianhe Sports Center CBD 389,900 0 600-2,000 Project Asking rents (RMB/sq m /month) Teemall 2,-3,000 Grandview Mall 1,-2,000 Taikoo Hui 1,500-2,500 Zhujiang New Town CBD G.T. Land Season Mall 500-1,000 Looking forward, benefiting from the convenient transportation, the retail areas in Panyu and Haizhu districts will become the market focus for the mid-high retailers. Rents in Zhujiang New Town CBD are anticipated to taper off further due to the increasing stock. The citywide rent will remain stable. Recent Transactions Kiehl's leased sq m of space in Teemall, Tianhe Sports Center CBD. Yuexiu (Zhongshan San Road) Yuexiu (Beijing Road) China Plaza 800-1,300 May Flower Plaza 1,000-1,400 www.dtz.com Property Times 4
Residential In July and August 2012, Guangzhou s residential property supply witnessed sharp growth of 35% compared with the last two months, to 1.45 sq m of new housing completions. 78.2% of total supply in Panyu District, Huadu District and Nansha District. In particular, new completions in the four central districts Yuexiu, Liwan, Tianhe and Haizhu continued to be limited, accounting for 0.18 sq m of new completions, down 18% quarterly (Table 5). Driven by stable expectations for price, upcoming tightening of first home-buyer loans and fluent supply, active market sentiment was witnessed with sales transactions in July and August 2012 reaching 1.52 sq m, an increase of 11.6% q-o-q. 68% of total transaction volume was in Panyu, Huadu or Baiyun districts. In particular, transactions in July 2012 reached 0.8 sq m, the highest level since October 9 (Table 5). Looking at the ratio of supply to demand, in July and August, the ratio for Guangzhou central districts climbed to 1:1.7, resulting in the residential price increasing significantly by 8.0% quarterly to RMB 21,867 (US$3,444) per sq m and pushing up the citywide residential prices to RMB 14,056 (US$2,214) per sq m (Table 5). Given the limited supply of high quality property and growing demand in Tianhe District, prices there reached RMB 30,168 (US$4,751) per sq m, the highest among all districts (Figure 6). For the high-end residential market, landlords remained positive on price and rental negotiations due to good location and growing demand. According to the DTZ residential index, second-hand luxury residential prices surged notably, up 1.6% q-o-q, 0.9 percentage points greater than in Q2 (Figure 5). The growing supply pipeline is expected to increase the stock further. Developers have slowed down their building process and are focusing more on how to speed up absorption of their stock. Looking forward, new projects in the suburbs will continue price cutting strategies, and prices are expected to decrease as a result. However, price in central districts will remain stable, supported by strong demand. Meanwhile, sales transactions are expected to increase slightly due to strong demand and fluid supply. Table 5 Residential market statistics (July - August 2012) District Rents (RMB/sq m/ month) Change q-o-q (%) Availability ratio (%) Change q-o-q (%) Yuexiu 0 27,900 27,670-11.1 Liwan 90, 101,000 19,978-11.9 Haizhu 73,600 75,500 24,986 13.9 Tianhe 19,000 84,700 30,168 6.8 Baiyun 58, 164,400 16,783 2.4 Huangpu 32,400 8,700 13,369-6.6 Panyu 326, 478,700 13,179-18.7 Huadu 556,300 393,000 8,168 5.2 Source: Bureau of Land and Resources and Housing Management of Guangzhou Municipality Figure 5 DTZ residential index, (6 Q1=) 280 260 240 220 180 160 140 120 80 5 6 7 8 9 2010 2011 2012 Residential rent Residential price *Data for 2012 is as of Q3 Figure 6 Primary residential price by district (RMB per sq m) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Souce: Bureau of Land and Resources and Housing Management of Guangzhou Municipality www.dtz.com Property Times 5
Definitions Availability: Availability Ratio: Total floor space in properties marketed as available to let, whether physically vacant or occupied, and ready for occupation immediately. Total space currently available as a percentage of the total stock of floor space. Development Pipeline: Comprises two elements: 1. Floor space in course of development, defined as buildings being constructed or comprehensively refurbished to grade A standard. 2. Schemes with the potential to be built in the future, through having secured planning permission/development certification. Net Absorption: New Supply: Prelet: Prime Rent: Rent: Prime Yield: Market Yield: Stock: Take-up: Vacancy: The change in the total of occupied floor space over a specified period of time, either positive or negative. 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. A development leased or sold prior to completion. 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.) Gross transacted rents (unless otherwise specified), which excludes management fees and other outgoings. 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.) Annual transacted rent as a percentage of the capital value of the property. Total accommodation in the commercial and public sectors both occupied and vacant. 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.) 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). www.dtz.com Property Times 6
Other DTZ Research Reports Other research reports can be downloaded from www.dtz.com/research. These include: Occupier Perspective Updates on occupational markets from an occupier perspective, with commentary, analysis, charts and data. Global Occupancy Costs Offices 2012 Obligations of Occupation Americas 2012 Obligations of Occupation Asia Pacific 2012 Obligations of Occupation EMEA 2012 Property Times Regular updates on occupational markets from a landlord 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 Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, Madrid, Manchester, Melbourne, Milan, Nanjing, Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian. Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. Great Wall of Money October 2012 Property Market Correlations October 2012 J-Reit October 2012 Rise of City Clusters September 2012 Singapore luxury condominiums September 2012 China Hongqiao Transportation Exchange June 2012 Global Debt Funding Gap May 2012 DTZ Research Data Services For more detailed data and information, the following are available for subscription. Please contact graham.bruty@dtz.com for more information. Investment Market Update Regular updates on investment market activity, with commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland China, South East Asia, Spain, Sweden, UK. Money into Property For more than 35 years, this has been DTZ's flagship research report, analysing invested stock and capital flows into real estate markets across the world. It measures the development and structure of the global investment market. Available for Global, Asia Pacific, Europe and UK. Foresight Quarterly commentary, analysis and insight into our in-house data forecasts, including the DTZ Fair Value Index. Available for Global, Asia Pacific, Europe and UK. In addition we publish an annual outlook report. Property Market Indicators Timely series of commercial and industrial market data in Asia Pacific and Europe. Real Estate Forecasts, including the DTZ Fair Value Index Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Europe and the USA. Investment Transaction Database Aggregated overview of investment activity in Asia Pacific and Europe. Money into Property DTZ s flagship research product for over 35 years providing capital markets data covering capital flows, size, structure, ownership, developments and trends, and findings of annual investor and lender intention surveys. www.dtz.com Property Times 7
DTZ Research Contacts Business space Grace Lee Phone: +86 20 8510 8288 Email: grace.wm.lee@dtz.com Consultancy Kelvin Lai Phone:+86 20 8510 8138 Email: kelvin.qw.lai@dtz.com Facility & property management Lee Fu-wah Phone:+86 20 8510 8268 Email: fuwah.lee@dtz.com Investment Sylvia Su Phone:+86 20 8510 8228 Email: sylvia.jt.su@dtz.com Valuation & advisory services Grace Lin Phone:+86 20 8510 8238 Email: grace.b.lin@dtz.com 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 2012 www.dtz.com Property Times 8