2005 2006 2007 2008 2009 2010 2011 2012 2013F 2016F Property Times Shanghai Q3 2012 Retail rental keeps upwards trend 15 October 2012 Contents Economic Overview 2 Office 3 Retail 4 Industrial & logistics 5 Residential 6 Investment 7 Definitions 8 Author Shaun Brodie Head of East China Research Head of China Strategy Research +86 10 8519 8196 shaun.brodie@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 The average grade A office transacted rental in Shanghai reached RMB8.76 (US$1.41) per sq m per day at the end of Q3 2012 (Figure 1). The citywide availability ratio stood at 8.85%, remained stable quarter-on-quarter (q-o-q). The overall high-end retail rental in our five selected retail hubs increased 1.5% q-o-q to reach RMB 57.83 (US$9.11) per sq m per day. The overall high-end average occupancy rate saw a slight decrease of 0.77 percentage points q-o-q to reach 91.26%. The overall industrial rent growth moderated across the board reaching RMB 56.98 (US$8.97) per sq m per month. Meanwhile, the total availability ratio in the market decreased to 8.44%. The high end non-serviced apartment price of Q3 saw a slight decrease from RMB 60,556 (US$9,612) per sq m, to RMB 58,172 (US$9,233) per sq m, a loss of 4.10% q-o-q and a gain of 2.86% year-on-year (y-o-y). While looking at high end villas, the average price increased by 10% from RMB46,164 (US$7,328) per sq m to RMB 51,188 (US$8,125) per sq m. The average rental of high end serviced apartment in Q3 saw a 9.13% decrease to RMB250.98(US$39.8) per sq m per month. Figure 1 DTZ grade A office index (Q1 2005=100) 230 210 190 170 150 130 110 Hans Vrensen Global Head of Research +44 (0)20 3296 2159 hans.vrensen@dtz.com 90 70 50 F=Forecast Grade A office rental Grade A office price DTZ Research
Economic Overview Economic Overview Shanghai s Q2 GDP grew by 7.2% to reach RMB 955.2 billion (US$150.43billion). Disposal income per capita hit RMB 20,689 (US$3,258) in Q2 2012, an increase of 12.5% y-o-y (Table 1). From January to August 2012, total industrial output (above a designated size) accumulated to reach RMB 2,063.7 billion (US$325 billion) with 0.7% y-o-y decrease (Table 1). From January to August 2012, real estate investment increased 12.4% y-o-y to reach RMB 144.9 billion (US$23 billion). Meanwhile, investment in the residential sector picked up its growth rate to 9.7%, and the growth rate in the office sector was about 7.7%.The retail sector gained 28.7% y-o-y (Table 1). Shanghai s consumer price index (CPI) in August reached 103.2. CPI decreased by 0.4% y-o-y (Table 1). In August utilised foreign direct investment (FDI) increased by 20.2% y-o-y to reach US$106.41 million (Table 1). Table 1 Economic indicators Indicator Period Unit Value Change y-o-y (%) GDP Q2 2012 RMB 100 million Total industrial output (above a designated size) Disposable income per capita FDI utilised Aug 2012 Real estate investment Consumer price index Jan Aug 2012 RMB 100 million 9,552 7.2 20,637-0.7 Q2 2012 RMB 20,689 12.5 US$100 million Jan Aug 2012 RMB 100 million 106.41 20.2 1,449 12.4 August 2012-103.2 0.4 Source: Shanghai Statistics Bureau www.dtz.com Property Times 2
2005 2006 2007 2008 2009 2010 2011 2012 2013F 2016F Shanghai Q3 2012 Office Data released by the Shanghai Statistics Bureau saw the city s service industry fixed assets investment slide to RMB 30.9billion (US$4.8billion) in August from RMB 34.1billion (US$5.4billion) seen in July, up 5.5% y-o-y from 20% in July. Cumulative y-o-y growth also dropped slightly to 6.8%, indicating a weakening performance for Shanghai s service sector overall. Foreign direct investment to service sector showed sign of stabilization came to US$1.8billion in August compared to US$1.9billion seen in July. Meanwhile, office property investment rebounded in August reaching RMB 2.4billion (US$0.4billion) with 28.4% y-o-y growth recorded. Though external markets continued to deteriorate imposing downward pressure on service industry in Shanghai, nearterm capital may continue to be channelled through to office sector due to the weakening outlook on trade and manufacturing. This quarter, the Shanghai Grade A office market welcomed new supply in Pudong, Changning and Minhang, bringing on a total of 285,484 sq m of grade A office space. The overall grade A office stock thus reached to 5,766,469 sq m (Table 2). Office net absorption also improved to slightly above 250,000 sq m, implying a rather healthy leasing forefront amid a general concern of demand slowing down. As a result, the citywide availability ratio remained stable at 8.85%. Overall availability ratio is expected to fluctuate at current level in the near-term while supply and demand gradually reaches its equilibrium. However, medium-term outlook may trend upwards given the amount of future available stock open to the market on the back of investment capital continue to flow into commercial real estate (Figure 3). Shanghai s overall rental incurred a negative quarterly growth in Q3 for the first time since Q1 2010, dropped 1.16% q-o-q while y-o-y growth narrowed down to 5.31% from 13.17% in Q2 (Figure 2), implying both domestic and multi-national corporations earning ability continued to deteriorate. A more moderate rental correction at current level is anticipated in the short-term accompanied with a cautious growth outlook kept in place. Falling y-o-y rental growth rate suggests city s office market may have entered a more sustainable path from previous high growth period. China s y-o-y FDI stayed negative for six months in a row between November 2011 to April 2012, indicating a nearterm downside risk on commercial property price. However, quantitative easing in both Europe and US may provide some pricing support on the downside as more speculative investments are constantly seeking for high yielding assets in the emerging markets. Table 2 Grade A office market statistics District Total stock (sq m) Availability ratio (%) Average Rental (RMB/sq m/ month) Change q-o-q (%) Pudong 2,106,268 8.21 8.68-0.47 Hongkou 146,302 52.75 5.81 12.50 Huangpu 1,054,968 7.04 9.28-1.63 Zhabei 181,612 12.14 6.12 4.25 Jing an 708,475 3.07 11.82 3.17 Changning 821,938 7.42 7.73 1.94 Xuhui 622,906 4.26 8.78-4.62 Putuo 66,000 30.00 5.00 25.00 Minhang 58,000 60.00 4.00 - Overall 5,766,469 8.85 8.76-1.16 Note: Rental equals Gross Transacted Face Rental Figure 2 DTZ grade A office index (Q1 2005=100) 230 210 190 170 150 130 110 90 70 50 F=Forecast Souce: DTZ Resarch Figure 3 Grade A office rental Grade A office price Availability ratio, supply and net absorption, sq m(000s) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 F=Forecast Souce: DTZ Resarch 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F New supply Net absorption Availability ratio 30% 25% 20% 15% 10% 5% 0% www.dtz.com Property Times 3
Retail This quarter, our downtown total high-end stock remained at 1,909,193 sq m (Table 3). In the next six months, we estimate a total of 310,271 sq m will be introduced to Shanghai s downtown high-end retail market (Table 4). The refurbishment of shopping centres on Huaihai middle road is still going on this quarter. The Huaihai Youth Shopping Centre closed for renovation; Dingxin Building, former Xihua Book Store, is also under construction; Shanghai No.2 Department Store will close down by the end of year, and becomes the second flagship store of Uniqlo. Parkson Huaihai Department Store closes its B1, L7 and L8 for renovation to prepare for the coming National Day. We believe after these renovations Huaihai Middle Road will fit in with the new development concept. After the No.1 Department Store closed down, the Spring Department Store shut down this quarter. More and more traditional department stores try their ways to avoid the limitation. The occupancy rate dropped to 91.26% at the end of Q3, down 0.77 percentage points on the last quarter. Rental in five selected retail hubs showed an increase of 1.5 percentage points to RMB 57.83 per sq m per day (US$9.11) per sq m per day (Figure 4). In this quarter, the government issued the twelfth five-year plan for domestic trading development. It set the retail sales growth target to 15% annually, and clearly defined the expansion of domestic demand plan for long term. No doubt, the sluggish domestic market will benefit from this, as well as local retailers and those new comers. Table 3 High-end retail market statistics Retail Hubs Total stock (sq m) New supply (sq m) Average rental (RMB/sq /day) Lujiazui 607,378-44.0 0.76 Nanjing East Rd Huaihai Middle Rd Nanjing West Rd 395,628-58.7 1.91 375,292-49.8 3.14 285,895-83.0 1.84 Xujiahui 265,356-70.2 1.07 Overall 1,929,552-57.83 1.50 Figure 4 DTZ high-end retail index (Q1 2006=100) 125 120 115 110 105 100 95 90 m q-o-q change (%) 2006 2007 2008 2009 2010 2011 2012 Table 4 Selected high-end retail future supply Retail hubs Selected projects Estimated launch date Nanjing West Rd Park Place Q4 2012 Huaihai Middle Rd ICC Q1 2013 Nanjing East Rd Agile International Plaza Q1 2013 Nanjing West Rd Eco City Q4 2012 www.dtz.com Property Times 4
Table 5 Industrial & logistics The city s industrial land sales market experienced a surge in terms of land sales value, volume and transacted land prices. According to the Shanghai Land and Resource Bureau (as of 19 September 2012), a total of 156 industrial land parcels were transacted at an average transacted price of RMB 641.7 (US$ 101.1) per sq m, an increase of 7.1% q-o-q and 13.2% y-o-y. In fact, the total volume in terms of land plot transacted so far has tripled the figure seen in the second quarter. In addition, the total land sales value for the 156 plots amounted to around RMB 2724 million (US$428.9 million), up 24.6% y-o-y. Overall, the average industrial rental stabilised across the board (Figure 5). R&D office rents stabilised q-o-q reaching RMB 101.29 (US$15.95). Warehouse rents declined slightly to RMB 37.72 (US$5.95) per sq m per month while the average manufactory rents rose slightly to RMB 31.94 (US$5.02) per sq m per month (Table 5 and Figure 5). In our opinion, most of the pro-growth measures related to industry upgrades and strategic investment have been gradually filtered through. We remain confident that Shanghai s industrial market will experience a reviving growth towards the year end. Industrial market statistics Total stock (sq m) Availability ratio (%) R&D office 4,357,514 14.37% 101.29 Warehouse 3,497,672 8.97% 37.57 Manufactory 9,596,933 5.55% 31.90 Overall 17,452,119 8.44% 56.98 Figure 5 DTZ industrial index (Q1 2006=100) 150 140 130 120 110 100 90 Rental (RMB/sq m/month) 80 2006 2007 2008 2009 2010 2011 2012 Figure 6 Industrial rent as of Q3 2012 120 100 80 60 40 20 0 R&D Office Warehouse Manufactory Source: DTZ Industrial www.dtz.com Property Times 5
Residential China s inflation grew at its slowest pace in 29 months in June, giving the central government more leeway to loosen credit in order to spur the slowing economy. Therefore, we observed that The People's Bank of China cut interest rates and allowed banks to set lower lending rates. This brought with it a sentiment sustaining good transaction volume in July. However, home-buying momentum nationwide withdrew a bit after eight inspection teams were dispatched by the central government to 16 provincial areas in July. A tightened mortgage policy on first-time buyers also damped some homeseekers' interest. As a result, fewer Chinese cities saw the price of new homes rise in August as demand fell across the country. New home prices in Beijing, Guangzhou and Shenzhen climbed by less than 0.3 percent in August, while those in Shanghai stayed unchanged. In Shanghai, the Q3 transaction volume of high end residential property declined by 18%, from 249,354 sq m in Q2 to 202,750 sq m (Figure 7). A similar drop was also recorded in the nonserviced apartment sector, with transaction volume down from 189,596 sq m to 157,096 sq m. The decrease this quarter is relatively smooth compared with the sharp increase in Q2 from 148,569 sq m to 249,354 sq m in total transaction volume (Table 6). This indicates the market expectation has changed from house prices bottoming out to wait and wander. Although with a dropping transaction volume, the high end residential property price remains relatively stable this quarter. The high end non-serviced apartment price saw a slight decrease from RMB 60,556 (US$9,612) per sq m, to RMB 58,172 (US$9,233) per sq m, a loss of 4.10% q-o-q and a gain of 2.86% y-o-y. While looking at high end villas, the average price increased by 10% from RMB 46,164 (US$7,328) per sq m to RMB 51,188 (US$8,125) per sq m, indicating the solid demand within the metropolitan area (Figure 8). Going forward, the central government shows its solid determination to control the housing price within a reasonable range and protect it from a retaliatory rebound. With the tightening of mortgage policy, economy expanding to second and third tier cities and more residential land sales planned in this second half year, price in Shanghai will remain relatively stable in the near future. However, in the long run, the solid demand here will drive the residential property price rising up again, but with a reasonable pace. Table 6 High-end residential market statistics New supply (sq m) Transaction volume (sq m) Price (RMB/sq m) Rental (RMB/sq m) Non-serviced apt 50,948 157,096 58,172 116.5 Serviced apt - - - 251.0 Villa 96,979 45,654 51,188 92.6 Note: Date as of 20 September 2012 Figure 7 DTZ high-end residential index (Q1 2006=100) 210 190 170 150 130 110 90 70 2006 2007 2008 2009 2010 2011 2012 High-end residential rental *Data as of 20 September 2012 Souce: DTZ Resarch Figure 8 High-end residential price High-end non-serviced apartment price by district as of Q3 2012, RMB/sq m 100,000 80,000 60,000 40,000 20,000 0 Huangpu Jing'an Xuhui Changning Hongkou Pudong Note: Date as of 20 September 2012 Souce: DTZ Resarch www.dtz.com Property Times 6
Investment We noticed that this quarter the government released more lands to the market, and the market responded with some deals at a certain mark-up. However, developers and investors are still pessimistic, because no sign of loosening the residential control and recovery of the world economy. Up to 30 September 2012, the total number of deals done in Shanghai in Q3 (each with a unit value of more than US$10m) are 31 land and enbloc deals, a rise of 34.78% from the last quarter and a drop of 38% y-o-y (Table 7). Looking into the numbers, the high-end residential kept the similar numbers as last quarter. Industrial showed a 175% of increase and mixed use land picked up to five transactions. Compared with last year, the land transactions in residential stayed at single number for two quarters, which probably reflect the market trend. Developers have less interests on residential, and pay more attention on commercial properties. Regarding total consideration in the overall market, the number actually decrease 26.08% q-o-q, and 67.32% y-o-y, to RMB 9.45 billion (US$1. 49bn) in Q3 (Table 8). Although the number of transaction for residential was down, the consideration still kept the similar level. Surprisingly the mixed use deals made a dramatically fall in consideration, a 46.96% down q-o-q and a 90.51% decrease y-o-y. The uncertainty of the market prospective and difficulty in financing made investors and developers more prudent, when they buy lands or en-block projects. We recorded only one en-block deal made by foreign investors. Most deals made by domestic buyers were for owner-occupation. Table 7 Total number of major deals Q3 2011 Q2 2012 Q3 2012 Residential 27 9 10 Office 0 5 4 Industrial 4 4 11 Retail 11 2 - Mixed use 8 1 5 Others 0 2 - Total 50 23 31 Table 8 Total consideration of major deals (RMB 100 million) Q3 2011 Q2 2012 Q3 2012 Residential 12,560 1,708 3,222 Office 0 5,609 3,213 Retail 446 310 1,885 Industrial 3,961 1,359 - Mixed 11,961 2,140 1,135 Others 0 1,666 - Total 28,928 12,792 9,455 This quarter is a peak time of real estate trust s expire date. There is about hundred billion RMB real estate trust due in the quarter. It is estimated that over three hundred billion RMB real estate trust will expire in 2013. Developers are going to have pressures on cash flow again. We believe that the risk of payback the trust will increase, and by the time there will be some projects sold if developers cannot payback the trusts. Table 9 Significant deals Property Submarket Sector Price (RMB million) Huamin King Tower Jing an District Office 1824 Changhai Office Putuo District Office/Retail 416 www.dtz.com Property Times 7
Definitions Availability: Availability Ratio: Development Pipeline: Net Absorption: New Supply: Prelet: Prime Rent: Rent: Prime Yield: Market Yield: Stock: Take-up: Vacancy: 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 floorspace. 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. 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.) Floors pace 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 8
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 inhouse 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 Time series of commercial and industrial market data in Asia Pacific and Europe. Real Estate Forecasts, including the DTZ Fair Value IndexTM 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 9
DTZ Research Contacts Consultancy Michael Ma Phone:+86 21 2208 0381 Email: michael.sw.ma@dtz.com Consultancy Michael Ma Phone:+86 21 2208 0381 Email: michael.sw.ma@dtz.com Industrial Tony Su Phone:+86 21 2208 0255 Email: tony.zy.su@dtz.com Investment Jim Yip Phone:+8621 2208 0250 Email: jim.ks.yip@dtz.com Office Leon Fu Phone:+86 21 2208 0562 Email: leon.cy.fu@dtz.com Building consultancy Anthony Ng +86 21 2208 0168 Email: anthony.m.ng@dtz.com Residential Jenny Wu Phone: +86 21 2208 0218 Email: jenny.hm.wu@dtz.com Retail Raymond Wei Phone: +86 21 2208 0230 Email: raymond.tm.wei@dtz.com Valuation Hans Gu Phone:+86 21 2208 0503 Email: hans.yr.gu@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 10