Savills China Research

SPOTLIGHT Hangzhou Report 2018

savills.com.cn/research 2018 Hangzhou Report

City and Economy Overview

Hangzhou is at the forefront of China’s push to develop its tech industry, and serves as a blueprint for other cities across the country. Hangzhou’s growth is symbolic as China’s continuing transition from manufacturing to a value-added, serviced-based and technologically-advanced economy.

Economy & Population size FIGURE 1: 2017 Top 10 city tertiary GDP per capita

Hangzhou’s GDP achieved an 8% real 105,214

growth in 2017, totalling RMB1,255.62 Suzhou 104,986 billion, which put the city as the 10th 103,972 largest economy in China. Tertiary Shanghai 85,942 GDP increased by 14% in 2017, accounting for 63% of the total GDP. Hangzhou 82,988 The percentage of tertiary GDP to Shenzhen 70,733 total GDP has risen from 49% in Tianjin 69,285

2011. The Hangzhou permanent Wuhan 65,555 population reached 9.47 million, up Chengdu 46,061 3.05% YoY. Urban population reached Chongqing 31,101 7.27 million, accounting for 76.8% of the total population. According to - 20,000 40,000 60,000 80,000 100,000 120,000

2017 China Urban Research Report Source: National Bureau of Statistics released by Baidu Maps (2017年 度中国城市研究报告), Hangzhou was 9th place in China in terms of TABLE 1 : Hangzhou GDP and population growth past decade urban vitality1. The incoming work force keeps the economy attractive 5 year CAGR 2007 2012 2017 and builds up a virtuous cycle of (2012-2017) business growth and technological advancement. GDP (RMB bn) 410.1 780.2 1,255.6 10.0%

Population (mn) 7.9 8.8 9.5 1.5% 1 Urban vitality: Baidu Maps uses big data to rank cities by infow of residents staying for more than two months. Source: National Bureau of Statistics

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Wealth FIGURE 2: Number of billionaires by city 2016 vs 2017

Built on the fast growing 2017 2016 high-technology industry and 360 e-commerce, Hangzhou is quickly 330 becoming home to fortune. GDP 300 per capita increased 13.6% in 2017 270 to RMB136,656, and remains the 240 210 highest in province. Urban 180 disposable income per capita was 153 150 123 RMB56,276, up 7.8% YoY. The 120 robust IT industry in Hangzhou has 90 also made an increasing number 60 of billionaires; based on Hurun’s 30 2017 “The Richest People in 0 China” ranking, Hangzhou has 153 billionaires, 30 more than in 2016. Hangzhou is the 4th in China in number of billionaires and has the Source: Hurun most billionaires among second-tier cities.

Hangzhou is also home to 26 FIGURE 3: Sector breakdown of companies valued over unicorns (start-ups valued over US$1 US$100 million billion) and 105 companies valued over US$100 million according to 2% a weLian (a platform that connects 3% 5% 16% investors and start-ups) report. The Finance 5% Corporate service unicorns in Hangzhou rank third in E-commerce volume after Beijing and Shanghai, Medicare and Health 7% and second in value after Beijing. The Transportation Hardware unicorn companies have become 16% Local daily life service the forerunners in the country’s 8% Culture, Entertainment and Sports development of new technologies Real Estate Service and the digital economy. Unicorns Education Games in Hangzhou were valued at $141.9 11% Social Network billion and are focused mainly 15% Tourism on e-commerce, IT and internet 11% fnancing. Ant Financial, the company that runs Alipay and is located in Xihu district, was had the highest valuation Source: weLian at US$75 billion.

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Within Hangzhou, the city also boasts institutions of higher education in Infrastructure an expanding metro network. In Hangzhou, led by Zhejiang University, 2017, three lines were in operation a Project 211 and 985 university. In With an extensive network of (Line1, 2 and 4) with a totalling length 2017, Hangzhou was home to 79,300 expressways and railways, Hangzhou of 107.02 km. The city plans to add graduates with around 10,000 holding is highly connected with other 10 more lines—including extensions a master’s degree or above, up by cities in Yangtze River Delta and to the three existing ones—as part 4.6% and 21.7% YoY, respectively, Zhejiang province. Business people of the city development preparation the highest level on record. in Hangzhou can make it to Shanghai for hosting the 2022 . There are 13 international schools in within an hour by high-speed train, The total length of metro network Hangzhou with seven in Xihu District, making it a hub for cities south of when complete will be 387.8 km. including Cambridge International Shanghai. Now Hangzhou has three While some cities are answering Centre of Hangzhou Yulan School, train stations, with Hangzhou East government’s call to manage Fixed Hangzhou Entel Foreign Language Railway Station being the newest one Asset Investments (FAI), Hangzhou, School and Marco Polo International (completed in 2013) which specifcally with its schedule to host the School. serves high-speed rail passengers. international games, will continue to As for airports, Hangzhou’s Xiaoshan improve its infrastructure. Hangzhou is also witnessing a International Airport ranked as the revolution in its education industry— 10th largest international airport the launch of China’s frst private in China, serving 25.57 million Education research university, Westlake passengers both domestically and University. The school has received internationally in 2017, up by 12.6% Hangzhou has an ample education over RMB100 million, and will rely YoY. resources supplying its new industries on private donors for most of its and growing economy. There are 18 funding. Currently, Tencent’s CEO

MAP 1: Hangzhou metro plan 2022

Source: Hangzhou Metro

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Pony Ma and Dalian Wanda’s founder down on earth, there are Suzhou (莫干山) as well as international trips Wang Jianlin lead the donations. and Hangzhou.” With its canals and to cities such as Los Angeles and The non-proft institution will carry waterways, hills, temples, Longjing Singapore. out basic and advanced scientifc tea plantations, Xixi National Wetland research, emphasizing the cultivation Park and the world-renowned West With its natural beauty, the city’s of innovative technologies and their Lake, Hangzhou has built a reputation tourism industry is growing. In 2017, applications. The fact that Westlake as one of the most beautiful cities Hangzhou received 162.9 million University relies on private business in China. Hangzhou ranks as the visitors and a total realized tourism donations could create synergy 3rd most liveable city in China, revenue of RMB304.1 billion, up between educational institutions and following Shanghai and Suzhou in by 15.8% and 18.3%, respectively. businesses. ULI’s 2016 Chinese Mainland Real During the G20 Summit, Hangzhou Estate Market survey. In addition, showed the world its charm with its Environment and Tourism with more developed transportation beautiful natural scenery and city infrastructure, Hangzhou citizens can development and, in four years, take easy getaway trips to nearby the will provide As the old Chinese saying goes tourist spots like Thousand Island Hangzhou another opportunity to “Up in heaven, there is paradise; Lake (千岛湖) and Mogan Mountain showcase itself to the world.

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Hangzhou Development Plan

Covering a total land area of 16,596 sq km, Hangzhou is comprised of ten urban districts and two rural counties (Tong Lu and Chun’an) and one county-level sub-city (Jian De). The development of the city is driven by three main industries—high-technology, intelligent manufacturing, and finance.

including Zhejiang University, which to implement the “national talent” Hi-tech Industry creates collaborations between strategy, enhance scientifc and universities with hi-tech companies. technological innovation and hasten The growth of hi-tech industry economic transformation. Modelled in Hangzhou is focused on Future Sci-Tech City after Silicon Valley, the development government-planned Chengxi Sci- Future Sci-Tech City (the City) is zone is the result of district Tech Corridor. Crossing located west of downtown Hangzhou, government partnership with Alibaba District (西湖区), Yuhang District next to Zhejiang University, nine and hopes to create an international (余杭区), and Lin’an District (临安 kilometres from Westlake, and close ecosystem for local start-ups and 区), Chengxi Sci-Tech Corridor has a to the Xixi Wetlands. The City has a entrepreneurs. total area of 224 sq km, 30 km from total core development area of 35 sq east-to-west and 7 km from north- km. The City was established by the The City provides domestic and to-south. As part of the priority work Hangzhou and Zhejiang governments overseas high-level talent with many for the Zhejiang government under its 13th Five-Year Plan, Chengxi Sci-Tech Corridor is being built into a world leading IT centre with three TABLE 2 : Three areas focusing on hi-tech industry growth precincts—Future Sci-Tech City ( ), Zhejiang University 未来科技城 Region Specialty Area (sq km) Science City (浙大科技城), and Qingshanhu Science City Chengxi Sci-Tech Future Sci-Tech City Hi-tech 35 Corridor (青山湖科技城) as well as a few Xixi Valley Internet Chengxi Sci-Tech towns focusing on special industries Fintech 3.1 Finance Town Corridor and sectors. Chengxi Sci-Tech Chengxi Sci-Tech Dream Town Internet based 3 Corridor is also surrounded by Corridor a cluster of nine universities and

higher-education institutions Source: National Bureau of Statistics

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20.3 RMB bn 360.9 RMB bn 2011 2017 Future Sci-tech city total income from technology and trade related activities

favourable policies such as settlement Grade A offce and the demand will China within fve years. assistance, house rental support, and increase when start-ups grow in size start-up subsidiaries. Future Sci-Tech and scale. The City is expected to develop City is now home to Alibaba’s Taobao further as Hangzhou improves Town which has four phases with a Since 2017, a number of companies public transportation access for the total GFA of 930,000 sq m. In addition, with Artifcial Intelligence (AI) area. Metro Line 3 and 5, which are there are also Alibaba affliates such technologies such as automatic forecasted to be completed by 2021 as Cainiao (菜鸟网络) and Ding Talk driving, intelligent medical equipment and 2019 respectively, will go through (钉钉) and other fast growing start- and digital image analysis have Future Sci-Tech City and Line 5 will up companies such as Souche (大搜 started businesses in the City. Local connect to all the core submarkets in 车) and Rokid. Future Sci-Tech City is offcials plan on developing the area Hangzhou. seen as an emerging submarket for into a frst-class AI industrial base in

MAP 2: Three main industry development areas

Source: Savills Research

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Xixi Valley Internet In terms of transportation, Xixi Valley children’s education, rental discounts Finance Town Internet Finance Town is directly and tax benefts. Internet companies Xixi Valley Internet Finance Town connected to highways such as have been sprouting up in Dream covers an area of 3.1 sq km and Huhangyong highway, Hangning Town since its offcial launch in 2015. has become the fntech capital of highway and Hangjinqu highway. The the city. In order to grow the town, town is only 15-minute drive from the One success story is Immersion local government accelerated the Hu Technology (映墨科技), a company construction of key projects, land specialising in Virtual Reality (VR) acquisition and relocation and Dream Town technology. The company started in infrastructure improvement as well as Located in Future Sci-Tech City, 2014 in Dream Town with six people. releasing favourable policies to attract Dream Town covers a total area of Then it expanded to around 30 people companies and talent. 3 sq km. Dream Town comprises of and received RMB5 million of venture two parts—the frst is the Internet capital from DunAn Capital (如山创投) By April 2017, more than 250 Start-up Village focusing on research, within a year. Later as the company’s fntech companies, including Zhi development and production of core technology developed, the internet-related products such as Ma Credit and Mo Gu Jie (蘑菇街), company grabbed opportunities to were established in the town. Ant e-commerce, game making, software work with Foxconn and Alibaba and, Financial Services is the frontrunner design, information service, big data in 2016, it successfully raised RMB38 of the fntech industry in China and and cloud computing, and the other million Series A capital investment. is located in the town’s “Z Space”. is Angel Village focusing on fnance, Today Immersion Technology has Completed in Aug 2017, Z Space was investment and wealth management. built itself into a leading Chinese VR built by Alibaba and now holds around Angel Village helps start-ups during company with R&D capabilities and 5,000 Alibaba employees. It was also their frst rounds of funding. products specialising in children’s announced during the 2017 Global education. Blockchain Finance (Hangzhou) To attract internet start-ups, the local Summit that China’s frst blockchain government has also released many industrial park will be created in the favourable policies related to the town. hukou (household registration) system,

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production in line with “China Made wetland park. The park is expected to Intelligent Manufacturing Industry 2025”. be three times larger than Hangzhou’s Xixi Wetland Park. The growth of intelligent The Greater Jiangdong Industrial manufacturing is focused on the Cluster is one of the core precincts As the development proceeds, the government-planned Chengdong in the corridor and is specialized in area will also enjoy easy access by Intelligent Manufacturing Corridor. manufacturing high-end equipment public transportation. Metro Line The corridor has a total planned and intelligent products. 7 and Line 8 are planned to be construction area of 500 sq km and completed in 2021 and will connect covers fve administrative districts To promote the development of the the development area with the rest of including Jianggan, Binjiang, cluster, the local government has the city. Xiaoshan, Yuhang and Fuyang issued policies to attract talent and districts. The corridor focuses on companies such as subsidiaries for Currently, the industrial cluster automobile, aerospace, robotics, young professionals to relocate. In is home to a number of famous smart rail transit, new energy and addition, to improve liveability and domestic companies including advanced industrial materials create an agreeable environment, the Dongfeng Yulong, Xizi Aviation and manufacturing, as well as health care government is planning a 35 sq km Ansteel Group as well as foreign companies like Ford and UPS. The Chinese Academy of Sciences has created four projects in the Greater Jiangdong Industrial Cluster with Planned construction area specialisation in high-tech production of robots, automobile sensors and 500 sq km 109 sq km pressure monitors. For example, one of the projects—Leishen Laser—is Chengdong Intelligent Greater Jiangdong Manufacturing Corridor Industrial Cluster expected to create production value of RMB1.5 billion within the next fve years.

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International Centre by Oceanwide. Finance Industry QJNC currently has Metro Line 2 and Line 4 connecting it to the rest of the Besides traditional Central Business city. With improved accessibility, a District (CBD) areas such as maturing business environment and 1.29 million sq m Huanglong and Wulin, Qiantang comparatively low rents, QJNC has River Finance Bay is a new planned QJNC Grade A offce convinced a number of companies area home to fnancial headquarters, stock by 1H/2018 to relocate from traditional business private funds, internet fnance and big areas. To support the growth of data companies. the area and encourage young professionals to settle down in QJNC, Qianjiang New City the area has built up a number of Qianjiang New City (QJNC) is the core educational resources including Qianjiang Century City area in the Qiantang River Finance international schools like Qianjiang Qianjiang Century City (QJCC) is Bay and is also Hangzhou’s new BASIS International School. the emerging area in Qiantang River CBD. QJNC is in the southeast side Finance Bay which is south of the of Jianggan district and north bank As the new CBD, QJNC also has Qianjiang River. of the Qiantang River and is only fve the new headquarters for the city km from West Lake. QJNC has a total government as well as some other Before the 2022 Asian Games, QJCC area of 15.8 sq km of which 4.02 sq public buildings like the Hangzhou plans to have a total stock of 1.55 km is core development area. International Conference Centre, million sq m Grade A and Grade B which hosted the 2016 G20 Summit. offce space with a number of eye QJNC has seen a number of With strong amenities, well-developed catching high-rises commercial high-quality commercial projects infrastructure, high density of high- projects including The Gate of developed by well-known domestic rises, and easy access to downtown Hangzhou by Greenland, Cinda and international developers over the areas, QJNC is becoming an Centre by Cinda Group, Vanke Centre past several years including Raffes important CBD in Hangzhou for by Vanke and a project by China City by CapitaLand, MixC Tower by commercial growth. Resources. China Resources and Oceanwide

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Insurance, Guosen Securities, 163. support, tax break and others. com, Sense Time and Paytm. A nice environment and unique architecture makes the area an Over Jade Town of Shannan appealing place for professionals to (玉皇山南基金小镇) live and work. People are attracted by 2,500 FUNDS Jade Town of Shannan is a well- the beautiful natural scenery including known special town in Qiantang clear water ponds, meandering creeks, Jade Town of River Finance Bay. Located between spritely trees and distinctively Shannan manages Yuhuang Mountain to the north and Jiangnan-style buildings. By April 2018, Qiantang River to the south, Jade there has been 2,589 funds (including Town of Shannan covers an area DH Fund Management, Kaitai Capital, of fve sq km. Following the model and Cybernaut) that have opened in the Hangzhou Olympic and International of hedge fund town Greenwich, town which are collectively managing Expo Centre will be built in QJCC. The Connecticut, US, Jade Town of RMB1,060 billion in assets. Centre comprises of a main stadium Shannan Fund was offcially opened that can hold 80,000 people, a tennis in 2015 and is building itself into a As part of the supporting facilities, stadium that can hold 10,000 people, funding and investment hub. the town has ample educational and a swimming stadium with 6,000 seats medical resources including Wahaha and a comprehensive training stadium The local government has released International School and Shaoyifu with a total area of 180,000 sq m. The a number of favourable policies to Hangzhou International Medical Centre entire centre with a total buildable incentivise the growth of the town (邵逸夫医院杭州玉皇山南基金小镇国际 area of 2.7 million sq m will be the including subsidies for building up 医疗中心). core area for 2022 Asian Games. funds and investments, offce rental The Asian Games will not only bring widespread attention to QJCC, but also stimulate the development of the area by creating a large number of jobs. Besides Metro Line 2 that is currently in operation, Metro Line 6 and Line 7, which are expected to be completed before the Asian Games, will go through QJCC.

Besides the fnancial industry, QJCC also plans to build AI, big data, cloud computing and music industries. The frst national music industry base will be established there. Currently, QJCC is home to a number domestic and international companies such as China Construction Investment Group, China Railway Investment, Zheshang

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Hangzhou Real Estate Market Overview

Office Market “Continued optimism in the commercial markets and Hangzhou’s offce market has seen increased interests from investors, especially in QJNC rapid growth in the past decade. The and future Sci-tech city. The retail market will take time city has a total Grade A offce stock to upgrade and grow with the continnous participation of 1.99 million sq m by 1H/2018 with of international operators.” James Macdonald, Savills China annual new supply averaging 335,000 Research sq m in the past three years. Before the development of QJNC, the city’s Grade A offce stock was mainly in prime areas like Huanglong and working brands. For example, naked in 1H/2018. The growth in rent Wulin. Starting from 2010, QJNC has Hub opened its frst space in Euro was mainly driven by the strong received a large amount of new supply America Centre located in Huanglong, performance of QJNC and high- which peaked in 2017. SOHO 3Q leased around 6,000 sq m quality new supply in Hangzhou’s in Zhejiang Fortune Finance Centre offce market. Despite the infux of new supply, and WeWork will set up its frst Hangzhou Grade A offce market has location in Hangzhou in Gonglian Huanglong and Wulin are the prime also seen growing amount of demand Plaza, taking up around 10,000 sq m offce markets in Hangzhou with in recent years. The city-wide Grade in Q4/2018. Many other co-working a total stock of 535,500 sq m in A offce market vacancy rate was at operators are forecasted to expand to 1H/2018. Faced with the competition 14.2% by 1H/2018. Hangzhou market in the near future. from QJNC, landlords in these two Like in other cities across the country, areas have been under the pressure to In terms of the demand side for the co-working brands are moving from lower rents to retain tenants resulting Grade A offce space in Hangzhou, Grade B offce buildings to Grade A in a decrease in prime market rent fnancial, information and professional buildings in Hangzhou, helping absorb of 1.2% YoY. Recent completion of services sectors remain the key Grade A offce space and putting premium quality projects such as demand drivers. There has also been upward pressure on rent. Kerry Centre and Huanglong Vanke a notable uptick in leasing activity Centre Building A&B, as well as among real estate and architecture City-wide Grade A offce rents more supply in the coming years will companies. In addition, the market increased to an average of RMB5.4 make Huanglong and Wulin more saw increasing demand from co- per sq m per day, up by 3.4% YoY competitive.

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Over the past years, QJNC has seen (including projects from Greenland, Wantong Centre, AUX Future Centre, a large amount of new supply, a lot China Resources, Vanke, Shimao and and Fuli Centre in the coming years. of which are high-quality commercial Cinda) will be complete in 2021 and Supply is expected to be met by projects developed by well-known 2022 in QJCC. The premium quality demand from hi-tech companies due domestic and international developers projects will take time to absorb and to the “Alibaba impact”. Binjiang is such as Raffes City by CapitaLand, place pressure on surrounding areas. also expected to see several Grade A MixC Tower by China Resources As home to the campus for Alibaba’s projects in the next a couple of years and Oceanwide International Centre Taobao Town, Future Sci-tech City is including Shimao Intelligent Gate (世 by Oceanwide. With the business expected to see the launch of several 茂智慧之门) at the end of 2018. environment maturing in QJNC and Grade A projects including EFC, the area’s metro connectivity and retail amenities improving, there is increasing demand for offce space in the area, which has allowed FIGURE 4: Grade A offce supply, demand and vacancy rate, landlords to raise rents. The average 2005-1H/2018 rent in QJNC was RMB4.99 per sq Supply (LHS) Take-up (LHS) Vacancy rate (RHS) m per day, up by 7.6% YoY. Internet 35% companies and fnancial companies 500,000 take up most of the demand for 30% offce spaces in QJNC. With the total 400,000 25% stock reaching 1.29 million sq m by 1H/2018, the submarket will keep 20% 300,000 absorbing space over the next several years, further pushing up the rents sq m 15% till demand and supply shift to QJCC 200,000 around 2022. 10% 100,000 5% Qingchun Road is another non-prime area in the Hangzhou offce market 0 0% with a total stock of Grade A space of 227,100 sq m by 1H/2018. Companies in fnancial and pharmaceutical Source: Savills Research industries account for most of the tenants in Qingchun mainly due to a number of governmental fnancial FIGURE 5: Grade A offce rents , 2009-1H/2018 institutions including Zhejiang Province Securities Regulatory Huanglong Wulin Qingchun Road Qianjiang New City Commission and Zhejiang Province 170 Banking Regulatory Commission and large, leading hospitals being located 160 in the area. However, since Qingchun 150 Road is surrounded by West Lake, no new supply is expected to be added 140 to the submarket in the next several RMB/sq m day 130 years. As a result, the growth of the ） area will rely heavily on renovating and 120 upgrading the current stock. 110 (Q1/2009=100 Besides the submarkets mentioned 100 above, the local government also plans to develop other areas for 90 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 commercial use including QJCC, 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Future Sci-tech City and Binjiang.

The majority of new developments Source: Savills Research

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has Taobao Xinxuan (淘宝心选) which Life Hub and Intime City (Linping) in sells popular products on Tmall, the Retail Market West City. Additionally, there was one Tmall Future Store (天猫精灵未来馆) project—Huarun Wanxiang Hui—that showcasing the latest tech products, Hangzhou’s retail market has a total launched in suburban Xiaoshan. Hema Supermarket (盒马鲜生) that stock of over 3.44 million sq m of has 440 seats for dining. Though all high-quality retail space in 1H/2018, As the frst project launched in prime these technologies created by Alibaba with only about 30% located in the area in the last 12 months, Hangzhou are still in experimental stages and city’s retail prime area including Tower Central Plaza—with a total retail have some teething issues, they are Lakeside, Wulin and QJNC. Lakeside GFA of 94,000 sq m—has attracted expected to be at the forefront of the and Wulin, east of West Lake, are a lot of attention. The mall is in the retail revolution in the future. traditional prime shopping areas in underground area of Wulin Square Hangzhou with high-end shopping with two retail foors conveniently On the demand side, the growing malls such as Hubin Yintai and Kerry connected to Wulin Square metro retail sales and tourism industry Centre. QJNC has developed into a station (Line 1). The mall positioned enables the city to absorb the large prime retail area in the past ten years itself as a fashionable place for young amount of new supply, keeping the with the construction of MixC and people—with a number of trendy overall city vacancy rate around 10%. Raffes City. The rest of the stock shops such as the frst offine Kaola The average vacancy rate of shopping is located in the non-prime areas shop in Hangzhou, the frst Adidas malls increased by 2.7 ppts HoH to including the west, north, and south Running shop in China, Zukka, Super 11.0% mostly because of the new of the centre city as well as Qingchun Species (超级物种) and MOOGAN (摩 supply. Lakeside saw a decreased of and Binjiang. 根家居). 1.7 ppts HoH due to strong leasing performance in a couple of leading Hangzhou’s retail market has seen Besides the fve shopping malls, projects including Hubin Yintai Phase surge in supply in the past several Alibaba opened its frst offine mall Four. The vacancy rate in West City years, especially in non-prime areas. Qin Cheng Li (亲橙里) in Future and Wulin increased by 5.4 ppts HoH New supply in the past three years Sci-Tech City. The shopping mall and 4.0 ppts HoH, respectively, due to totalled 1.2 million sq m, of which only with a total retail GFA of 40,000 sq three new projects. one-ffth were located in prime areas. m meets the daily needs of Alibaba In the frst half of 2018, four retail employees as F&B takes 40% of the With strong consumption power, projects were launched in downtown whole area. The shopping mall is also Hangzhou has been the city that Hangzhou, adding a total retail GFA an experimental place for Alibaba’s many brands choose to open their of 398,000 sq m including Hangzhou new retail technologies like AR mall frst stores in eastern China outside of Tower Central Plaza in Wulin, City Mall guides, VR ftting rooms, and digital Shanghai. Victoria’s Secret opened a Phase 2 in North City and Yuhang displays for targeted ads. 亲橙里mall full-line store in In77 D (Hubin Intime Phase 3). Household appliances brands takes a comparatively large presence in Hangzhou’s retail FIGURE 6: Downtown retail supply and stock, 2008-1H/2018 market as Hangzhou residents Shopping malls (LHS) Department stores (LHS) Stock (RHS) are enthusiastic about purchasing 950 4 property. In the F&B sector, local 850 3.6 Hangzhou food still dominates the

750 3.2 market followed by specialities such as hot pot, Japanese/Korean food 650 2.8

million m sq million and Sichuan food while Guangzhou sq m 550 2.4 cuisine fnds it comparatively hard to 450 2 break into the Hangzhou market.

thousand 350 1.6

250 1.2 City-wide frst-foor rents increased by 2.5% YoY to RMB18.9 per sq m 150 0.8 per day mainly due to annual rental 50 0.4 growth of certain existing projects. (50) 0 QJNC had the highest HoH rental 08 09 10 11 12 13 14 15 16 17 1H/2018 growth among all submarkets at 1.7% Source: Savills Research

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to RMB26.7 per sq m per day thanks to the strong leasing performance of FIGURE 7: Retail rents and vacancy rates, 1H/2017 vs 1H/2018 the landmark Raffes City. 1H/2017 rent (LHS) 1H/2018 rent (LHS) 1H/2017 vacancy (RHS) 1H/2018 vacancy (RHS)

Looking forward, the market is 30 18% expected to welcome 731,400 sq m 27 16% of new supply in the second half of 24 14% 2018 with several landmark projects 21 12% including Joy City, Knowledge Mall, 18 10% In77 E (Hubin Yintai Phase 5). The 15 8% large amount of new supply will put 12 RMB per sq m per day per m sq per RMB pressure on vacancy rates. With 6% 9 the existence of high-end retail 4% 6 projects including Kerry Centre, Joy 3 2% City, Raffes City, Hangzhou’s retail 0 0% market is expected to see a gradual Prime Non-prime Overall improvement of retail stock. Source: Savills Research

In the end of May, Hang Lung Properties acquired a land site of 194,000 sq m GFA in Wulin for an accommodation value (AV) of around RMB55,000 per sq m and 108% premium with a plan to develop a large-scale mixed-use commercial complex, comprised of a world-class mall and offce tower. Other bidders included Alibaba, Sun Hung Kai and Wharf. The ferceness of the bidding for a premium site in Hangzhou indicated developers’ confdence about the growth of commercial market in Hangzhou.

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