Savills World Research

Spotlight Savills City Series - Nanjing May 2013

savills.com.cn/research savills.com.cn/research 01 Briefing |Savills China City Series - Nanjing May 2013

Spotlight Savills China City Series - Nanjing

City introduction 5

Planning 8

Labour and education 9

International links 9

Quality of life 10

Grade A office market 11

Retail 12

Residential 14

Serviced apartment and hotels 16

Investment deals 17

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Executive summary FIGURE 1 Nanjing, also known as the southern Location of Nanjing capital, has a long history. In recent years, however, the city is better known as the provincial capital of . The city is synonymous with heavy industry but in fact over 50% of its GDP is now contributed by the tertiary industry. Supporting the manufacturing sector, Nanjing is a key transportation hub both for goods and people, acting as a gateway between the River Delta and central/ western China, as well as an important stop on the – railway segment. Supporting the tertiary industry, the city has a number of leading educational institutions, helping to position Nanjing’s tertiary education system among other leading cities, such as Xi’an and , in the top five in the country.

The commercial and high-end residential sectors are dominated by Xinjiekou, a name that is known throughout China. Xinjiekou straddles three districts, namely Gulou, and Baixia, and is the traditional heart of the city. Its younger pretender, Hexi central business (CBD) is located in the west of the city in Hexi Source: Savills Research district. Although planning only started in 2002, Hexi CBD is already having a and street stores, in some ways similar the city, has yet to fully utilise the notable impact on the city’s property to Shanghai’s Xujiahui. Shoppers tend underdeveloped river views in the markets, with a handful of commercial to be locals or tourists from the north north of the city. mixed-use projects already completed of Jiangsu or neighbouring but many more currently under province, attracted to the city by its The residential leasing market is construction and expected to be relatively large retail stock (estimated dominated by the strata-title market. completed over the next three to five at 1.8 million sq m) and wide range There is only one serviced apartment years. The scale, superior quality, of low- to mid-end domestic and currently in operation, Fraser Suites and district master planning and international brands. This is in contrast Nanjing, with rents of approximately infrastructure will give this submarket a to the prime retail districts of Shanghai RMB150 per sq m per month. High- key advantage over the overcrowded which have been given over to mid- to end strata-title rents go for about city centre. high-end and luxury brands. half of this at RMB75 per sq m per month. Growing business operations The office market, with a history of 15 The residential market holds its own, of multinational corporations (MNCs) years, has a total stock of 780,000 sq with average transaction volumes should result in increased numbers m. However, this is expected to balloon over the last five years averaging of expatriates looking for quality over the next three years, with annual around 7 million sq m and prices accommodation, with a number of supply expected to average 300,000 over the last two years averaging serviced operators keen to enter the per annum. Much of this new supply is RMB11,000 per sq m. Buyers tend to market in order to be able to meet this located in Hexi CBD. While this will put be locals or families from the north of demand. pressure on both rents and occupancy Jiangsu and Anhui drawn to the city rates, state-owned enterprises (SOEs) by its plentiful educational resources. The investment market remains are expected to absorb much of the The highest prices in the city are small with only a handful of deals new supply, as several of the projects roughly RMB50,000 per sq m and having been concluded over the last are being developed for self use by can be found in the city core in close five years. This is partly due to the companies with ties to the state. proximity to Xinjiekou, with Hexi CBD lack of available investment-grade holding second place with the highest developments on the market and The retail market, as with many other prices averaging around RMB26,000 the risk-averse nature of investors to cities, is still led by the traditional city per sq m. The residential market, second-tier commercial markets over core, Xinjiekou. Department stores while utilising the natural landscape the last two years, combined with the dominate the region but there is also a offered by Zhongshan Scenic Area limited rental growth prospects for the heavy concentration of shopping malls and the in the east of office market.

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City overview

TABLE 1 Macro data, 2011

Nanjing China Nominal 5-year Nominal 5-year Indicator Unit Real YoY Real YoY Value YoY CAGR Value YoY CAGR (%) (%) (%) (%) (%) (%) GDP RMB bil 615 22.7 13.4 12 47,288 17.8 12.2 9.3 Industrial output RMB bil 1,035 24.3 12.3 - 84,427 20.9 15.8 - (above designated size) Permanent population Mil 8.1 1.3 1.8 1.3 1,347 0.5 0.4 0.5 Fixed-asset investment RMB bil 401 21.3 16.5 - 31,149 23.8 17.8 - (FAI) GDP per capita RMB 75,785 16.8 10.8 - 35,181 17.2 11.8 - Urban disposable income RMB 32,200 13.7 9.6 - 21,810 14.1 9.6 - per capita Urban consumption RMB 20,763 14.4 9.4 - 15,161 12.5 8.7 - expenditure per capita Retail sales RMB bil 267 17.8 14.1 - 18,392 17.1 15.6 - Foreign direct investment US$ mil 3,566 26.6 12.7 116,011 9.7 9.2 - (FDI) Exports US$ bil 31 24 8.5 1,743 24.9 7.4 - Higher educational - 53 - - - 2,409 2.2 4.8 - institutions Enrolments in higher Mil persons 0.7 - 3.2 - 23.1 3.4 4.1 - education Highway freight volume Mil tons 198.2 12.1 9.3 - 28,201 15.2 11.5 - Waterway freight volume Mil tons 140.9 24.8 18.3 - 4,260 12.4 8.7 - Railway freight volume Mil tons 18.2 14.2 11.0 - 3,933 8.0 4.6 - Air passengers Mil 13.1 4.3 10.2 - 293 9.5 9.6 -

Source: Nanjing Statistics Bureau, Savills Research

City introduction velopment and international expan- expected to open in mid-2013 and A commercial hub on the Yangtze sion for MNCs. Over 250 leading several more high-speed railways un- River Delta domestic enterprises and MNCs der planning within Jiangsu province. Located 270 km from Shanghai in have established plants or regional the downstream area of the Yangtze representative offices in Nanjing, al- Nanjing also has the second highest River Delta, Nanjing is the capital of lowing them to expand their business highway density in Jiangsu province Jiangsu province and one of east to cities throughout the Yangtze River and was the second city in the Yang- China’s main centres of industry. Delta, north Jiangsu and Anhui prov- tze River Delta to have a Metro net- ince. By the end of 2010, companies work in operation. The development Nanjing has long been recognised from over 100 countries (or regions) of this infrastructure is expected to as an important political, cultural had a presence and numerous help strengthen regional integration and economic centre. At present, it Fortune 500 companies had made and accelerate the development of occupies the role of a major commer- substantial investments in over 150 Nanjing’s ‘One-hour Urban Circle,’ cial hub on the Yangtze River Delta. projects in Nanjing. which consists of , Yang- According to the latest regional plans zhou, Huai’an, Ma’, Chuzhou for the Yangtze River Delta, Nanjing A national transport hub and . has been identified as a gateway for Nanjing is an important railway hub, promoting the development of central linking Shanghai with northern and Thriving private economy China, a national integrated transport western China. Two high-speed Jiangsu has a booming private hub and a centre of innovation and railway lines, the Shanghai–Beijing economy and the largest number of technology. and Shanghai– lines, pass private enterprises of all of China’s through Nanjing. The city has de- provinces. Nanjing’s municipal gov- Its strategic location, largely priva- voted a significant effort towards in- ernment is keen to boost the devel- tised local economy and advantages tercity railway construction, with the opment of private enterprises, espe- in industrial production have given Shanghai–Nanjing line having opened cially small and medium enterprises Nanjing a key role in regional de- in 2010, the Nanjing– line (SMEs). Nanjing has introduced

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TABLE 2 FIGURE 2 District information, 2010* Nanjing’s ‘One-hour Urban Circle’

Area Permanent Density District (sq km) population (persons per sq km) City-wide 6,587 8,004,680 1,215 Urban 260 3,358,069 12,891 Gulou 25 826,074 33,512 Baixia 26 602,031 22,813 Qinhuai 23 405,891 17,865 Xiaguan 28 445,117 15,701 Xuanwu 75 651,957 8,640 Jianye 83 426,999 5,149 Suburban 4,473 3,807,559 851 Yuhuatai 132 391,285 2,956 Qixia 381 644,503 1,692 Source: Savills Research Pukou 910 710,298 780 FIGURE 3 Jiangning 1,578 1,145,628 726 Nanjing district map Luhe 1,471 915,845 623 County 1,854 839,052 453 Gaochun 790 417,729 529 Lishui 1,064 421,323 396 Source: Nanjing Statistics Bureau, Savills Research * In January, 2013, Xiaguan and Gulou districts merged to become Gulou district; Baixia and Qinhuai districts merged to become ; and Gaochun and Lishui changed to administrative districts of Nanjing. numerous government initiatives and Nanjing’s economy has sustained taxation deduction policies aimed at double-digit real growth since 2000 encoraging private enterprises, as and has a nominal five-year com- well as a 20% corporate income tax pound annual growth rate (CAGR) of (as opposed to the 25% national rate) 13.4% (real five-year CAGR: 12.9%). for SMEs. Following this, the number In 2011, its GDP recorded a 12.0% of its private enterprises surged to real growth, higher than national 142,000 in 2010, comprising about average of 9.2%, reaching RMB615 14% of Jiangsu’s total. These same billion. Heavy industry accounts private enterprises contributed for approximately 83% of industrial 39.8% to Nanjing’s GDP in 2011 and production. At the same time as have proved to be an important part being focused on heavy industry, of the economy. Nanjing, as with many cities in China, is gradually developing its service This environment has led to the industry, with tertiary industry ac- creation of several famous national counting for 52.7% of the city’s GDP brands, including Nanjing Steel, in 2011 up from 46.2% in 2000. The Suning Appliance and Golden Eagle tertiary industry overtook the second- Group. Suning Appliance is one of ary industry in 2008 and became the the largest privately owned electrical main driving force for future, more appliance retailers in China. As of 31 sustainable, growth. December 2011, Suning had 1,684 retail stores in 256 cities throughout Nanjing is expected to focus on mainland China, and it also operates developing its service outsourc- in Hong Kong and Japan. ing industries, including advanced Source: Savills Research manufacturing and high-value–added options, private investment made Macro conditions industries. It is working to actively up almost half the total volume. Real Economy develop the emerging area of Hexi estate investment saw an 18.8% Nanjing is a regional hub in east New Town, attracting major domestic increase, to RMB89.7 billion, mainly China. The city has competitive enterprises and multinationals to set driven by soaring social housing advantages in the electronics and up regional research and develop- construction. manufacturing industries, rail and ment (R&D) headquarters. highway networks, and ample human Demographics resources, not to mention its status FAI reached RMB401 billion, up In 2011, the permanent population as the capital of Jiangsu province. 21.3% in 2011. Among all investment of Nanjing was about 8.1 million,

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with roughly 80% of the population Tourism high-speed railways (under construc- classified as living in urban areas. Nanjing is also a popular tourist spot tion). In addition to its position within This comparatively high urbanisa- for both domestic and international the national high-speed railway net- tion rate has helped Nanjing focus visitors. The city received 71.8 mil- work, Nanjing plans to build several on developing services that support lion domestic visitors and 1.5 million intercity railways to further enhance the manufacturing industry, as well overseas visitors (ranked 11th in integration in the region. The Nan- as construct a considerable amount China) in 2011, generating a total of jing–Hangzhou intercity high-speed of infrastructure. As with other large RMB110.6 billion in tourism receipts. railway is expected to be completed cities, limited land supply and larger in 2013, while a rail link connecting populations raise significant issues Nanjing’s most famous sightseeing eight cities in Jiangsu (Nanjing, Zhen- in terms of adequate infrastructure spots include Xuanwu Lake, Purple jiang, , , , and public facilities. At the moment Mountain, the Ming City Wall and , Taizhou and ) is Nanjing is going through a phase Sun Yat-sen’s Mausoleum. also under planning. These high- of suburbanisation as house prices speed railways are expected to continue to rise in the city centre, and Industry gradually replace older modes of as industries and their associated Nanjing’s four pillar industries intercity transportation, including jobs relocate to more decentralised Nanjing is a major centre of industry, slower trains and buses. locations. overwhelmingly focused on heavy industrial production, with four pillar The city’s two major railway stations industries, namely electronics and are (Xuanwu IT, petrochemicals, automobiles and district) and the newer Nanjing South FIGURE 4 steel, accounting for over 60% of Railway Station (), Industrial zones and logistics bases total industrial production. which services mainly high-speed (excluding county level parks) trains and is the largest railway sta- Industrial zones tion in China in terms of GFA. In order to take advantage of the ef- fects of industrial clustering, Nanjing Highway has established numerous industrial Nanjing features one ring road, four zones, technology parks and logistics national express highways and four bases throughout the city. bridge or tunnel crossings span- ning the Yangtze River, giving the There are currently four state-level city the highest density of highways industrial zones: in Jiangsu. With over 230 km of highways and a highway coverage ­- Nanjing New & High Technology density of 3.4 km per hundred sq Industry Development Zone (南京高 km, Nanjing is expected to complete 新技术产业开发区) 14 intercity highways by the end of - Nanjing Economic and Technologi- 20201 . Within each 100 sq km of the cal Development Zone (南京经济技 city’s area, there is roughly 110 km of 术开发区) local roads.

­- Nanjing Chemical Industry Park (南 Port 京化学工业园区) Due to its location in the downstream Yangtze River area, Nanjing boasts ­- Jiangning Economic Development the largest in China, Zone (江宁经济技术开发区) giving it a significant advantage in shipping and logistics. This uniquely Source: Nanjing Planning Bureau, Savills Research All these industrial zones are located situated inland port gives access in suburban districts and focus on to China’s vast interior, greatly industrial manufacturing. These de- enhancing its ability to service the TABLE 3 velopment zones have successfully crucial inland development currently Pillar industries performance, 2010 attracted international manufacturing underway. companies to establish manufactur- Industrial output ing and service outsourcing bases in Air Rank Industry Percentage (RMB billion) Nanjing. The fifth largest international freight airport in China, Nanjing’s Lukou 1 Petrochemical 261 30.6 Accessibility International Airport, handled nearly 2 Electronics and IT 145 17.1 Railway 13 million passengers in 20102 . The 3 Steel 69 8.2 Nanjing is an important railway hub, airport is serviced by 26 freight and 4 Automobile 61 7.2 linking Shanghai with northern and passenger airlines (both regional and Other 314 36.9 western China. The city will act as a international), providing flights to node for two national railway lines, Asia, Europe and the Americas. The Total industrial 850 100 the Beijing–Shanghai (in operation) distance from downtown to the air- output and Shanghai–Wuhan–Chengdu 1 Nanjing Planning Bureau. Source: Nanjing Planning Bureau, Savills Research 2 Source: Lukou International Airport.

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port is roughly 36 km, and an express Hexi New Town workers in Nanjing. The average an- airport highway is currently being Located in , Hexi New nual salary of employees in Nanjing built. Lukou International Airport’s Town is an emerging business district was RMB48,7803 . second phase expansion is currently supported by government incentives underway and is expected to finish in and policies, and featuring one of the In 2010, R&D expenditures in Nanjing mid-2014. city’s primary residential communi- accounted for 3.1% of GDP, signifi- ties. The municipal government’s 3 Nanjing Municipal Labour & Social Security Metro 12th Five-year Plan envisions the Bureau. As the second city in the Yangtze further development of residential, River Delta to put a Metro network commercial, and recreational areas, FIGURE 5 into service, Nanjing has extended while establishing a centre for re- Transportation network line 1 and added an additional line gional headquarters. since the first phase of Metro line 1 was completed in 2005. Nanjing’s Hexi CBD, in the centre of Hexi New Metro saw a 38% increase in annual Town, began planning and construc- passenger volume in 2011, to 343 tion in 2002. With three planned million person times. According to phases and an expected total GFA the city’s planning bureau, six new of 8 million sq m, it is designed as a Metro lines are scheduled for com- cluster for regional headquarters and pletion by the end of 2015, including financial institutions. The first phase lines 3, 4 (Phase 1), 10, 11 (Phase 1), was completed in 2011, with the 12 and a supplementary line access- second phase (including 14 projects) ing the airport. By that time, Nanjing estimated to finish by 2015. The third will have completed 250 km of Metro phase is still under planning. Total lines. investment for Hexi CBD is expected to reach RMB47 billion. Planning A regional hub Nanjing South Railway Station The Central Government’s plan As China’s high-speed railway for the Yangtze River Delta region, system develops, Nanjing South articulated in 2011, takes advantage Railway Station is becoming an of Nanjing’s strategic location and important transport link in . educational resources, leveraging It is projected that by 2030, Nanjing them to develop a base for advanced South Railway Station will serve over manufacturing, modern service 58 million rail travellers. Considering industries, shipping and logistics, the area’s already mature residential and scientific and technological in- stock, as well as the extensive num- novation. ber of projects planned and under development, it is projected that this City development focus area will eventually host a sizable Over the next ten years, Nanjing’s residential community. is expected to expand Source: Nanjing Planning Bureau, Savills Research southwards, elevating the impor- Suburban areas tance of business districts such as On the back of well-planned technol- Xinjiekou, Hexi CBD and Nanjing ogy parks and affordable housing, FIGURE 6 South Station to the level of sub-city both residential and commercial Metro network, 2015E centres. The Shanghai equivalents demand has boomed in the suburban of these three districts would be the areas of Nanjing, including Jiangning, Xujiahui, Lujiazui and Hongqiao areas Pukou and Xianlin. These three areas respectively. are planned as sub-municipal com- mercial centres, addressing demand Xinjiekou for increased living space and high- Under the joint administration of value quality of life. Gulou, Xuanwu and Baixia districts, Xinjiekou features the highest footfall Labour and education and retail rents in Jiangsu province. Nanjing’s workforce totalled roughly Connecting Metro lines 1 and 2, its 4.6 million people in 2010, with the daily footfall totals over 5 million on primary and secondary industries weekdays within the core area of 0.5 employing 500,000 and 1.7 million sq km, with leading retail and office people respectively. The number of projects clustered to the south. In the employees in the service industry city’s master plan, this traditional city has witnessed significant growth centre will be expanded to 4.1 sq km in recent years, with an increase of and developed as a hub for commer- 20% year-on-year (YoY), totalling 2.3 cial and business activities. million and accounting for half of all Source: Nanjing Planning Bureau, Savills Research

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cantly higher than the national aver- FIGURE 7 age of 1.8%. The emphasis on R&D Areas of focus has been stimulated by the city’s broad research base, consisting of over 200 engineering and technol- ogy research centres, and over 50 key laboratories (at both state and provincial levels4 ).

Ample supply of talent Nanjing is one of the leading educational hubs in China, with over 50 higher educational institutions (including and Central South University) and roughly 500 private R&D centres5. Nearly 255,000 students were enrolled for higher education in 2011, accounting for nearly 9% of the city’s population.

Policies for attracting and retaining Source: Nanjing Planning Bureau, Savills Research personnel In order to attract skilled employees FIGURE 8 and entrepreneurs to the city, Nanjing Employment by industry, 2010 introduced a programme in 2011, intended to nurture and develop a Primary industry Secondary industry Tertiary industry culture of entrepreneurialism, lead- ing to growth in Nanjing’s private industry and increasing its capacity 11% for innovation. The benefits of the programme include incentives such as financing or rental subsidies for qualified applicants.

6 International links 51% Trade and international coopera- tion 38% Nanjing currently boasts over 2,000 enterprises involved in international trade with over 200 countries.

Despite subdued demand from Source: Nanjing Statistical Bureau Europe and the US, exports recorded a 24% growth in 2011, to US$31 has managed to attract over 10,000 living, combined with a small-town billion. Although Europe and the overseas-invested enterprises, feel – unique for a burgeoning Chi- US remained the dominant export including 50 multinational regional nese metropolis. Also distinguishing partners, exports to emerging areas, headquarters and R&D centres. it from other metropolitan areas, Nan- such as ASEAN, saw a surprising Meanwhile, the four aforementioned jing features a large amount of green increase of 55% YoY, much higher pillar industries dominated overseas space, with over 50 parks, the newly than traditional export markets. investment, accounting for over 50% opened Xuanwu Lake and Purple Mechanical and electrical products of the total. By end of 2010, nearly Mountain, all free and open to the generated export sales of US$16.5 15,000 expatriates and compatriots public. Public green area per capita billion in 2011, accounting for 53% were living or working in Nanjing, was nearly 14 sq m, larger than the of total exports. At the same time, comprising 0.2% of Nanjing’s perma- national average of 11 sq m. utilised FDI reached US$3.6 billion in nent population. 2011, up 27% YoY. As the host city for the 2014 Youth Olympic Games, Nanjing boasts Multinationals in Nanjing Quality of life the best sports facilities in Jiangsu. Since the time of China’s ‘reform Comfortable living conditions Additionally, Nanjing currently has and opening’ in the 1980s, Nanjing Due to its historical position as the three golf clubs: Nanjing Harvard Golf capital of China and the fact that the 4 Statistical Communiqué of Nanjing on the 2010 Club, Gingko Lake Golf & Country city is the capital of an extremely National Economic and Social Development. Club and Nanjing Zhongshan Golf 5 Nanjing Municipal Investment Promotion Com- wealthy province, Nanjing is rec- Resort. mission. ognised throughout the nation as a 6 Nanjing Municipal Investment Promotion Com- mission. beautiful city with a high standard of

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Bordering Xinjiekou area, ‘Nanjing FIGURE 9 1912’ is an important F&B hub for Leading MNCs in Nanjing Nanjing, comparable to Shanghai’s Xintiandi. This area is known as the city’s bar and nightlife district, and is often frequented by expatriates and fashion-conscious locals.

Nanjing is also home to 16 interna- tional-branded and local five-star hotels, and also features a Fraser- branded serviced apartment.

Several international primary and secondary schools are present in Nanjing, catering chiefly to overseas students, including the British School of Nanjing, Eton International School Nanjing, Nanjing International School and Nanjing Lighthouse International School. Source: Savills Research

Real estate market

TABLE 4 TABLE 6 Macro data Retail sector, Q3/2012

Unit 2011 –Q3/2012 Value

Five-star hotels Indicator Unit Department Shopping No. - 16 (certified) store mall Investment RMB bil 87.2 78 Age years 0–70 0–10 30,000– New starts mil sq m 20.8 11.5 7,000–75,000 270,000 Under Size sq m (median: mil sq m 56.4 57.4 (median: Real estate construction 25,000) 80,000) Completed area mil sq m 11.7 4.5 Stock sq m 475,000 1,200,000 Sold area mil sq m 7.7 6.6 Total retail stock sq m 1,836,000 Consideration RMB bil 71.5 68 Deji, Central Emporium, Key landlords - Source: Nanjing Statistical Bureau, Savills Research Golden Eagle Achievable rent^ RMB per sq 220–800 TABLE 5 (shopping mall) m per month Grade A office, Q3/2012 Source: Savills Research ^ First-floor, 150-sq m unit lease to a fashion tenant, on a new area basis. Indicator Unit Value Median value Stock sq m 780,000 - TABLE 7 Age years 1–15 6 Residential, Q3/2012 Floorplate sq m 1,000–2,500 2,000 Value (typical) Indicator High-end Mass- Whole-floor High-end % 62–75 68 market efficiency rate Typical unit type - >3 bedroom 2 bedroom HSBC, Sharp, Anchor tenants - - Unit size sq m 160+ 90 Industrial Bank Mean achievable RMB per Achievable rent* 28,000 10,000 RMB per sq m per price sq m (excluding 85–150 110 month RMB per management fee) Mean achievable sq m per 75 30 Strata-title rent* RMB per sq m 23,000–35,000 29,000 month achievable price Unsold inventory units 48,000 Gross reversionary Mean achievable RMB per yield % 4.5–5.5 5 11,200 on strata sales units price sq m Source: Savills Research Source: Savills Research * Mid-zone, 500-sq m unit lease effective rate (taking into account rent free and fit-out). * Typical unit 12-month lease.

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Grade A office market m. It is a localised market, with all of only two Metro interchanges that Office market drivers the Grade A offices having been currently exist in the city providing The service industry accounts for developed by domestic developers it access to Metro lines 1 and 2. over 50% of Nanjing’s GDP and half and over 60% of Grade A offices Shanghai’s equivalent CBD might be of all employees. It also dominates occupied primarily by domestic Xujiahui, with comprehensive advan- FDI, having surpassed the manufac- enterprises. tages in accessibility, retail facilities turing industry since 2008. Software, and project quality. More than half logistics, insurance and banking Similar to other second-tier cities, of all Grade A office space in the attracted a majority of investments in Nanjing’s Grade A office market is city is located in Xinjiekou, however, the service industry. According to the dominated by strata-sales properties. the quality of office buildings varies Nanjing Municipal Investment Promo- Lease-only projects account for only greatly. In recent years, the launch of tion Commission, the city was home 35% of total Grade A stock and are several new Grade A office buildings to over 7,000 business service pro- primarily concentrated in Xinjiekou has helped to upgrade the area’s viders by the end of 2010, of which, and Hexi CBD. The main tenants are business standing. Xinjiekou currently 35 were banking institutions, 75 were leading domestic and international records the highest rents and lowest insurance companies and 25 were enterprises. vacancies in the city. international financial institutions. Median management fees are nearly The leading project in the area is Nanjing’s Grade A office market is RMB15 per sq m per month. The Nanjing City Centre (南京中心). mainly driven by leading domestic general quality of Grade A office Located in , the project and international service providers. buildings is relatively low, even for has an office GFA of 80,000 sq m By 2010, Nanjing was home to over the top five office buildings. Whole- and was handed over to the market 250 enterprise headquarters, includ- floor efficiency rates range from 60% in 2010. ing 90 multinational firms. to 72%, with an average of 68%. Less than half of all Grade A office As of Q3/2012, Xinjiekou had a total Market characteristics buildings have raised flooring, rang- stock of 416,000 sq m with a further Golden Eagle International Building, ing from 50 mm to 150 mm. four office towers scheduled to be the first Grade A office in Nan- added to the market by 2015 adding jing, was handed over in 1998. By Prime area: Xinjiekou another 130,000 sq m of Grade A Q3/2012, the total Grade A office Xinjiekou is recognised as the city’s office space. This area is favoured stock of amounted to 780,000 sq traditional CBD. Xinjiekou has one by SOEs and MNCs, specialising in

FIGURE 10 Grade A office location map, 2015E

Source: Savills Research

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manufacturing, trade, finance and CBD is still quite undeveloped and to exceed 300,000 sq m, nearly advisory industries. Asking rents are it will take a long time for the area to tripling the current stock by 2016. RMB100 to RMB140 per sq m per mature, yet the future supply forecast The pressure on the market may, month. for the next five years will double the however, be mitigated by the fact city-wide stock, consequently lead- that some of these projects, which Secondary area: Gulou – ing to elevated vacancy rates. have not started construction but Road are still at the planning stages, may Gulou – Hunan Road, to the north- The area’s leading project is Xindi have their launch dates postponed. east of Xinjiekou, is a traditional retail Centre (新地中心). This 59-storey Of the new supply that is currently area, with its first Grade A office building has an office GFA of 97,350 scheduled to come online over the buildings launched onto the market sq m and was added to the office next three years, 84% will be located in 2006. market in 2010. in Hexi CBD, creating a significant shift in terms of the city’s business Scattered amongst Gulou and Xuan- By Q3/2012, Hexi CBD had only landscape. wumen, a majority of Grade A office 177,000 sq m of Grade A office buildings have been developed by stock. However, by the end of 2015 Retail or received investment from leading a further 12 office buildings are Retail market performance domestic and international institu- expected to be completed, adding Nanjing’s retail sales amounted to tions, such as Greenland and Morgan over 1 million sq m of office space. RMB267 billion in 2011, rising by Stanley. All Grade A office spaces Hexi CBD is mainly driven by regional 17.8% YoY. The retail market is the are for strata-title sale, resulting in a headquarters of domestic enterpris- second largest in Jiangsu, trailing localised tenant profile. The launch of es, focusing on the finance and insur- only Suzhou. However, retail sales high-quality supply over the last three ance, IT and media industries. Asking per capita surpassed Suzhou in years has pushed office rents up in rents are about RMB80 to RMB140 2011. the area, but vacancies remain high. per sq m per month. Urban consumption expenditure The area’s leading project is Nanjing Outlook per capita reached RMB20,763 per International Centre Phase 1 (南京 The improved quality of upcoming annum in 2011, up 14.4% YoY. As 国际广场一期). Connected to Metro supply is expected to raise both the emerging middle class increases line 1, the project has two towers, the business environment and also in number, so has consumption, and an office GFA of 23,000 sq m attract better quality tenants. Lease- with expenditure for 15% of the (11/F to 22/F in the south tower). The only buildings are likely to become permanent population exceeding second phase, which is expected to more popular among SOEs and RMB50,000 per annum. be completed in 2015, will include MNCs as the differentiation in terms additional office space as well high- of lease and property management Market characteristics end residences, a five-star hotel and becomes clearer. Nanjing’s retail market benefits luxury shopping mall. greatly from tourists visiting from sur- At the same time, the municipal rounding areas, such as Ma’anshan, By Q3/2012, Gulou – Hunan Road government has set sales restrictions Huaian, Yangzhou and Zhenjiang. It had a total Grade A office stock of on some new offices in Xinjiekou is estimated that about 30% of Xin- 142,000 sq m with a further 50,000 and Hexi CBD, prohibiting them from jiekou’s consumption is contributed sq m expected to be added by 2015. selling units strata title for ten years by visitors from these areas1 . Most Office space is mainly dominated by after purchase of the land plot. It is shoppers from surrounding cities SMEs and MNCs in the manufactur- believed that this will help to raise the will tend to flock to traditional or ing and finance industries. Asking standard of property management tourist-oriented retail areas, such as rents are RMB95 to RMB135 per sq and attract better quality tenants. Xinjiekou and Confucius Temple. m per month. Robust demand for large office space With continuously increasing retail Emerging area: Hexi CBD has been seen primarily from cash- sales and the introduction of a num- Hexi CBD began its planning and rich domestic financial institutions. ber of mid- and high-end interna- development in 2002, with the aim China Development Bank (2010) tional brands, consumer preferences of boosting Nanjing’s “headquarter and Guangdong Development Bank are changing significantly. As the economy”. There are three phases (2011) have each purchased one emerging middle class continues to in the master plan. All the projects office building in Hexi CBD for self grow, demand for mid- to high-end in the first phase, which comprise use. Continuing rapid growth in many clothing, jewellery, fast-fashion and mainly office and residential, have domestic companies and a greater digital products has sprung up. been completed. The second phase preference for better quality office Meanwhile, customers have become focuses on the development of space are expected to increase the more sophisticated and distinctive, Grade A office buildings, with most importance of domestic tenants in giving rise to a diversified and well- of them scheduled to be added to the Grade A office market in the near segmented retail market. the market between 2015 and 2017. future. The scale of the scheme, especially Many hypermarkets, including in comparison to what already exists, Over-supply is expected to become Wal-Mart (three stores), Carrefour raises the very real possibility of over- an issue over the next four years, as 1 Nanjing Municipal Commerce Bureau: http://www. supply in the short to mid term. Hexi average annual supply is scheduled njsmj.gov.cn/www/njcom/view_a390708309253. htm.

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(four stores), Auchan (three stores) TABLE 8 and IKEA (one store) have entered Leading retail projects in Xinjiekou Nanjing’s market. The growth of high net worth individuals (HNWIs) has Xinjiekou Oriental Golden Eagle International also generated demand for the LVMH Central Department (Phases I and II) Center and PPR groups, as well as encour- Emporium Store 德基广场 金鹰国际购物中心 aging fast-fashion brands by Inditex 新街口中央商场 东方商城 （一期和二期） to open stores in the downtown Launch year 1936 1996 2000 2006/2012 area. Deji Plaza, the leading high-end mall in Nanjing, reported turnover GFA (sq m) 63,000 25,000 25,000 65,000/85,000 of RMB2.2 billion and a 55% YoY Floors B1/F–6/F 1/F–6/F 1/F–6/F B1/F–7/F growth in 2011. Department Type Department store Department store Shopping mall store Key players Nanjing’s retail market is mainly Positioning Mid-end Mid- to high-end Mid- to high-end High-end dominated by local operators. Source: Savills Research

Golden Eagle Retail Group Jiangning. Project sizes range from Road and plans to open two more Sixteen years after the opening of 180,000 sq m to 450,000 sq m. department stores in Hexi CBD, with its first department store – Nanjing a total retail GFA of 150,000 sq m. Golden Eagle International Shop- Central Emporium Group ping Centre (Xinjiekou) – Golden Central Emporium Group was Retail areas Eagle Retail Group has successfully established in 1936 and has since Nanjing’s retail market is segmented opened 27 self-operated stores with listed on the Shanghai A share and into four areas: a total GFA of over 1.13 million sq developed a diverse range of proper- m and a total operating area of over ties over a large geographical region. Prime areas: Xinjiekou 798,000 sq m. These stores span The group manages seven depart- four provinces, namely Jiangsu, ment stores, and three wholesale Secondary areas: Hunan Road; Con- Anhui, Shaanxi and , covering markets in Jiangsu, Anhui and Henan fucius Temple 16 cities. Golden Eagle Retail Group provinces3 , with a total operating typically focuses on securing long- space of 400,000 sq m. In contrast to Emerging areas: Hexi New Town term leases and developing mega Golden Eagle Retail Group, Central stores for one-stop shopping2 . Emporium chooses to cooperate with Xinjiekou developers to expand their scope of Similar to Wangfujing in Beijing and Golden Eagle Retail Group reportedly operations. The major beneficiary of East Nanjing Road in Shanghai, has three properties under construc- this cooperation is their main share- Xinjiekou is a traditional retail area tion in Nanjing: Golden Eagle holder, Yunrun Group. with a long history. Taking advantage International Shopping Centre Phase of its reputation, convenient acces- III in Xinjiekou, Golden Eagle G-city Central Emporium already manages sibility and diversified retail offerings, in Hexi and Golden Eagle G-city in two projects in Xinjiekou and Shanxi Xinjiekou attracts a huge number of 2 Golden Eagle Retail Group official website. 3 Central Emporium website. shoppers from Nanjing, and north FIGURE 11 Jiangsu and Anhui provinces. Xin- jiekou is reported to have recorded Map of department stores and shopping malls in the highest daily footfalls in Jiangsu, Nanjing, 2015E 400,000 to 500,000 for weekdays and 600,000 to 1 million for week- ends and holidays4 . Deji Plaza, in the northeast of Xinjiekou, ranks first in terms of the concentration of luxury brands in Jiangsu. Hermes, Louis Vuitton, Versace, Prada and Chanel have all opened stores in Deji Plaza. The Louis Vuitton store, which was enlarged in mid-2012, now spans two floors in the first phase of Deji plaza, occupying 2,000 sq m.

By Q3/2012, Xinjiekou was home to 14 retail projects totalling 550,000 sq m of retail space, the largest concen- tration of retail space in the four main retail districts in Nanjing. First-floor

4 Nanjing Municipal Commerce Bureau: http://www. njsmj.gov.cn/www/njcom/view_a390708309253. Source: Savills Research htm.

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rents for fashion or accessories retail- market in Xinjiekou, malls in this area of new supply of about 1 million sq ers range from RMB250 to RMB800 target young and white-collar cus- m will be handed over from 2015 to per sq m per month5 . Over the next tomers with international fast-fashion 2017, representing over 50% of the three years, 2013 to 2015, three and popular F&B brands. It saw an total space to be added to Nanjing’s department stores and one shopping average daily footfall of 150,000 market during this period. mall are expected to be handed over, for weekdays and over 200,000 for adding a further 250,000 sq m of weekends7 . Mall architecture here Outlook retail space to the market. creates an active and attractive Thanks to a substantial relocation shopping environment by making use towards decentralised and suburban Hunan Road of water features and open spaces. areas, demand for one-stop shop- Hunan Road, connected to Shanxi ping centres in these areas is pro- Road and the Shiziqiao food street, By Q3/2012, only one existing jected to surge in the next few years. primarily targets local consumers shopping mall of 167,000 sq m was In response to this trend, a consider- with the retail offerings reflecting this. handed over in the area. First-floor able supply of large-scale shopping There are, however, still a number of rents in this area are estimated to malls is expected to be handed over tourists to be found in the surround- range from RMB4 to RMB20 per sq from 2014 to 2015. Community malls, ing area visiting the famous scenic m per day. Small- to mid-sized shop- which are directly connected to spots, Xuanwu Lake and Gulou. The ping malls and department stores are Metro lines, are projected to become footfall per day is estimated to be expected to be added to the market the focus for investment and devel- 150,000 for weekdays and 250,000 from 2013 to 2015. opment. for weekends6 . There is a large num- ber of aged residential developments Hexi New Town Because of its key economic position in the surrounding area which are Hexi New Town is an emerging area and strong consumption ability, Nan- scheduled for redevelopment. with a history of around 15 years. In jing is one of main cities for interna- the city’s master plan, it is designat- tional retail brands’ China portfolios. Hunan Road’s total retail stock in- ed a “headquarters economy”, and cluded seven shopping malls and de- there are plans to develop its leisure In addition to local operators, some partment stores in Q3/2012 amount- facilities and residential communities. domestic and international enterpris- ing to 280,000 sq m of retail space. Following years of construction, the es have purchased land to expand First-floor rents for fashion or acces- area has developed into a mid- to their business in Nanjing. New entries sories retailers in this area range from high-end residential community with include COLI, Sunny World, Maoye, roughly RMB95 to RMB550 per sq m a large number of well-educated and SHK and Tesco, with projects located per month. One new project that is HNWI relocating to the area. Never- in secondary and emerging areas, scheduled for completion in the next theless, consumption is still focused Confucius Temple and Hexi New three years is Suning Tai Gu City, a on F&B, rather than clothing and digi- Town. mixed-use development with 60,000 tal products. With a lack of demand sq m of retail space. This project is from general retailers, the volume of Similar to other second-tier cities, expected to bring more energy and new supply entering the market is a over-supply is becoming a major is- dynamism to the area. key concern. sue, especially in emerging markets. Hexi New Town typifies this, with a Confucius Temple By Q3/2012, the total retail stock huge supply of about 1 million sq m, The Confucius Temple retail district reached 372,000 sq m. First-floor bringing substantial supply pressure attracts a large number of domestic rents vary greatly depending on to the retail market. visitors. Unlike the diversified retail locations and project but typically range from RMB1.5 to RMB8.0 per 5 Rents are for fashion or accessories retailers on Residential the first floor, on a net area basis. sq m per day. A significant volume Basic facts 6 Local newspaper. 7 Local newspaper. Nanjing’s residential market has a total stock of over 150 million sq m, TABLE 9 less than one-third of Shanghai’s Leading projects in secondary and emerging areas residential space. It is dominated by sales, rather than investment for Hunan Road Confucius Temple Hexi New Town lease, as the latter is estimated to Nanjing account for less than 20% of total Yaohan International Aqua City Wanda Plaza residential transactions. 南京八佰伴 Center 鹏欣•水游城 建邺万达广场 By the end of 2010, residential 南京国际广场 space per capita in Nanjing was 33 Launch year 2009 2011 2008 2009 sq m, slightly above the nationwide level. Composed of 2.77 members, GFA (sq m) 25,000 87,000 167,000 275,000 each household owns 1.2 units of Floors 1/F–4/F 1/F–8/F B2/F–5/F 1/F–4/F residential properties on average, which is believed to also be higher Type Department store Shopping mall Shopping mall Shopping mall than the national average. Thus, one Positioning Mid-end Mid- to high-end Young and mid-end Mid-end household typically owns 91.4 sq m of residential space, and the average Source: Savills Research size per unit is 76.2 sq m. However,

savills.com.cn/research 013 Briefing |Savills China City Series - Nanjing May 2013

a majority of those owning multiple FIGURE 12 properties do so for self use and/ Nanjing’s first-hand commodity residential market, Q1/2007– or wealth preservation, rather than speculation on capital value appre- Q3/2012 ciation. Supply (LHS) Transaction volume (LHS) Average price (RHS)

Besides commodity housing, social 3.5 14,000 housing supply is strongly encour- aged by the local government. In 3.0 12,000 2011, the total GFA of social housing under construction was 15.4 million sq m, accounting for approximately 2.5 10,000 RMB 10% of total residential stock. m

sq 2.0 8,000 per Market performance

In order to prevent a price surge sq m and to ensure affordability to home million 1.5 6,000 buyers, Nanjing’s residential market, like other key cities of China, has 1.0 4,000 experienced mortgage and developer financing restrictions since 2010. 0.5 2,000 From the beginning of 2011, home purchase restrictions (HPRs), which limit the capability to purchase mul- 0.0 0 tiple residential properties, have been Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 implemented in Nanjing and have 2007 2008 2009 2010 2011 2012 remained in place since. Source: Nanjing Real Estate Transaction Centre, Savills Research

The market reacted accordingly, with depressed transaction volumes 1) The traditional geographical, has been produced in East City as a and accumulating unsold stock. Not cultural and residential centre of result of historical and environment until Q2/2012 did transaction activity Nanjing; preservation, residential projects are recover, as the government began to typically spacious detached villas, adopt differentiated mortgage and 2) Within a ten-minute walk of Xin- fully utilising the natural environ- tax policies, as well as encouraging jiekou and Nanjing 1912 (a famous ment and attracting high-end buy- mass-residential supply, in order to F&B hub); ers. Prices in this area range from support end-use demand. While the RMB13,500 to RMB28,000 per sq m. average transaction price climbed 3) Mature residential and entertain- 144% from Q1/2007 and Q4/2010, ment facilities; and North City it notably edged down by 3% in the North City, which used to be re- 21 months during which HPRs were 4) Substantial educational resources. garded as a less developed area, has in place. begun seeing more high-end residen- However, as new residential-use tial projects, as the local government In Q3/2012, the market saw average land supply in this area is extremely endeavours to upgrade this area. monthly transaction volumes of close limited, new projects are normally These projects are normally low-rise to 1 million sq m and prices stabilis- developed into luxury high-rise apart- apartments located on the banks of ing around RMB11,000 per sq m. ments, with prices from RMB20,000 the Yangtze River with unit sizes ex- While the government is concerned to RMB50,000 per sq m. Meanwhile, ceeding 200 sq m. Transaction prices about whether the current scenario some old-style lane houses and can reach RMB27,000 per sq m. is sustainable or not, the trend of garden houses have been renovated Larger supply and transaction vol- slowing residential investment growth in the area around Beijing Road (W), umes have been registered in Hexi, and the decreasing numbers of new the northwest part of City Centre. Jiangning and Jiangbei areas in the starts, if unchanged, may lead to However, transactions of this kind past two years. Hexi area benefits supply shortages in the mid-term, have been comparatively few, due from the development of its new thereby pushing prices up once to a lack of sellable original proper- CBD, attracting more top domes- again. ties (in consideration of historical tic residential developers or even Market segmentation preservation), owners reluctant to international players, including China Nanjing’s residential market is gener- sell and very high unit prices of over Overseas and Yanlord. While single ally divided into eight areas. RMB50,000 per sq m. projects are often comparatively large in terms of total GFA, and are typi- City Centre East City cally developed in several phases, The City Centre is the most expen- East City is another sought-after property types tend to be more sive destination in Nanjing, resulting area of Nanjing, due to its proximity varied, satisfying different appetites. from a combined set of factors: to Zhongshan Scenic Area and the Jiangbei and Jiangning, as suburban Xuanwu Lake. While little new supply areas, are far from the City Centre,

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and both areas continue to feature a FIGURE 13 degree of manufacturing and factory Nanjing’s first-hand commodity residential price by activity. Price-sensitive, end-use buy- ers tend to look for properties here. district (RMB per sq m), 2012 Serviced apartment and hotels Serviced apartments Nanjing’s municipal government has introduced a unique land use right – “serviced apartment” – applied only in Nanjing. These 65 sites with this land use right are regarded as being for residential purposes, and are therefore subject to HPRs. As it is deemed ‘non-normal’ residential stock, buyers are not able to benefit from tax deductions and mortgage discounts. However, serviced- apartment–zoned land has not been released since 1 January 2011 (with exceptions for mixed-use land). For

consistency, serviced apartments Source: Savills Research mentioned below will refer to proper- ties providing centralised leasing and hotel services rather than self-use purposes. rumoured to be entering Nanjing Q3/2012, 11 international-branded in the near future. According to its hotels had been launched, operated Nanjing’s leasing market is mainly annual report, Shangri-la will add by famous hospitality groups includ- dominated by individual owners. 40 serviced-apartment units in 2013 ing Starwood, InterContinental, Accor High-end strata-title leasing proper- near Xuanwu Lake. and Hilton. Additionally, Shangri-la ties are clustered in the downtown and Fairmont are scheduled to enter area – primarily Xinjiekou – taking full High-end hotel market Nanjing’s hotel market in 2013. advantage of the convenient acces- By Q2/2012, Nanjing had 16 certified sibility, diversified retail facilities and five-star hotels, over 50% of which The MICE (meetings, incentives, ample educational resources. For are operated by domestic hospital- conventions and exhibitions) market high-end individual properties, aver- ity companies8 . In terms of aver- is a major driver for the luxury hotel age monthly rents are RMB80 per sq age nightly rates and occupancy, trade. By the end of 2011, over 50% m per month. Nanjing’s hotel performance is equal the high-end hotels in Nanjing, both to the national average but remains domestic and international, were Branded serviced-apartment per- the best in Jiangsu province. In 2011, concentrated downtown in the Xin- formance average nightly rates were RMB600 jiekou and Hunan Road areas, while Nanjing has only one branded per room per night, with an average other branded hotels are located in serviced apartment – Fraser – at occupancy of 70%. suburban areas, featuring mountain present. Located in Hexi CBD, Fraser views or hot springs. With the change Suites Nanjing was launched in 2007, Compared with international-branded in accommodation preferences, comprising two towers, one owned hotels, local operators in Nanjing hotels equipped with leisure facilities by individuals and another owned reported better operating perfor- and natural resources are becoming by Yanlord. The project offers five mances, both in terms of both turn- more popular for both individual and room types, ranging from one to over and gross profit. This is mainly business travellers. Consequently, three bedrooms. The smallest unit attributed to the good relationships this is changing the structure of size is 130 sq m and the largest is they enjoy with the local government Nanjing’s hotel market. and 295 sq m. Tenants are diversified, and domestic enterprises, as well Hexi New Town are the main areas including domestic business visitors as their understanding of the local benefiting from this trend. Meanwhile, and expatriates. Average rents are market and effective cost controls. In some Southeast Asian boutique roughly RMB150 per sq m per month, particular, Nanjing is home to one of operators, providing high-quality with nearly 80% of rooms currently the nation’s most famous domestic services and higher price points, are occupied. hospitality operators – looking to Tangshan in order to ex- Group. pand in Nanjing. They are committed Due to the increasing number of to offering intimate environments and high net worth business travel- The first international-branded hotel a unique living experience. lers, demand for branded serviced in Nanjing was the Sheraton Nanjing apartments is expected to see an Kingsley Hotel in Xinjiekou area. By upward trend. Meanwhile, additional 8 Q2/2012 national star-rate hotel statistical com- serviced-apartment operators are muniqué.

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Investment deals FIGURE 14 In general, institutional investment International-branded hotels in Nanjing, 2011 activity is relatively subdued. Office buildings and mixed-use projects in established and emerging CBDs accounted for the majority of total investment deals.

Xinjiekou, Gulou – Hunan Road area and Hexi CBD saw the most transac- tions. In 2005 and 2009, when a real estate slowdown occurred, some unfinished sites were transacted for unexpectedly low prices. In the Gulou – Hunan Road area, cash-rich SMEs in manufacturing industries prefer to buy whole or half floors for self use. Meanwhile, Hexi CBD has attracted leading domestic banks to make en- bloc deals. 

Source: Savills Research TABLE 10 Selected investment deals

Property GFA Price Unit price Type Date Area Seller Buyer Comments (EN&CN) (sq m) (RMB mil) (RMB per sq m) China Merchants Nanjing IFC Completed Office 2008 Xinjiekou 117,983 1,604 13,597 Property ARA Asset 南京国际金融中心 building Development Walsin Centro(#9 in plot C1) China Development Pre-sale Office 2010 Hexi 30,000 675 22,500 Walsin Lihwa 华新城 Bank Self use Walsin Centro(#10 in plot C1) Guangdong Pre-sale Office 2011 Hexi 27,067 661 24,408 Walsin Lihwa 华新城 Development Bank Self use Dafa Industrial Financial Office 2011 Centre Xinjiekou 6,400 196 30,613 Dafa Group Domestic company Self use 大发•兴业金融中心 Office 2011 Gulou 2,600 97 37,174 Greenland Group Jiangsu Gaoli Group - 紫峰大厦 Source: RCA, Savills Research Please contact us for further information Savills Research Savills Project & Savills China Development Consultancy

James Macdonald Ying Du Kitty Tan Albert Lau Associate Director, China Senior Analyst, China Director Head & Managing Director +8621 6391 6688 +8621 6391 6688 +8621 6391 6688 +8621 6391 6688 [email protected] [email protected] [email protected] [email protected]

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