Savills World Research Chongqing

Briefing Office sector May 2016

Image: Jiazhou Sincere Centre, Xinpaifang SUMMARY City-wide vacancy rates fell slightly and average rents were flat. Rental concessions are being offered by some landlords prior to the supply influx expected later this year.

­ Two office projects, located in and more affordable rents, are Hualongqiao IBD and Xinpaifang, snatching tenants from traditional brought 67,344 sq m of new supply to business districts. "A slowing economy has the market in Q1/2016. impacted the rental capacity ­ Average Grade A office rents fell ­ City-wide vacancy rates fell by 1.8% QoQ to an average of RMB of some enterprises. Faltering 1.9% of a percentage point (ppt) 98.72 per sq m per month, down from quarter-on-quarter (QoQ) to 52.4%, where they stood at 100 per sq m per demand is the reason for largely due to declining rents. month almost two yearsago. falling rents." ­ Net take-up outperformed ­ There were no changes to strata- Dave Law, Savills Research expectations; emerging business title transaction prices in Q1/2016, districts, with better quality projects

savills.com.cn/research 01 Briefing |Chongqing office sector May 2016

Forecast GRAPH 1 The city-wide vacancy rate is Grade A office supply, take-up and vacancy rates, expected to stay above 50% by 2006–Q1/2016 the end of 2016, while rents are Supply (LHS) Take-up (LHS) Vacancy rate (RHS) expected to continue declining 600,000 60% because of weak demand. Relatively

low property values could induce 500,000 50% some investors to purchase properties, which would help 400,000 40%

destock the city-wide supply glut.

sq m 300,000 30% Market commentary

The implementation of the five 200,000 20% functional areas strategy has

focused on the development of five 100,000 10% key urban areas: the core urban function area, the development 0 0% urban function area, the expanded 06 07 08 09 10 11 12 13 14 15 Q1/16 urban function area, and North and Source: Savills Research South Chongqing environmental areas. Core urban functionareas include the Yuzhong district and the GRAPH 2 inner-ring areas of Jiangbei Distract, Vacancy rates by district, Q1/2013–Q1/2016 Jiulongpo district, Dadukou district, Shapingba district and Nanan Jiefangbei CBD Guanyinqiao Jiangbeizui CBD Hualongqiao IBD Xinpaifang Nanping Yangjiaping Overall district. These areas are forecast to 90% aggregate more service companies, especially from trade and finance. 75% Jiefangbei CBD ,Jiangbeizui CBD, and Danzishi CBD are the most 60% important areas in the core urban 45% function areasarea. Supported by favorable government policies, the 30% area is expected to witness a drop in vacancy rates. 15%

Two Grade A office projects, totaling 0% over 60,000 sq m, were handed over Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 to the leasing market in Q1/2016. In 2013 2014 2015 2016

Jiefangbei CBD, the traditional prime Source: Savills Research area, stable demand combined with the absence of new supply resulted in a rapid drop in vacancy rates. received no new supply, meaning 1,410 sq m back to the Grade A competition pressure should abate. office market, as poor facilities Net take-up reached 59,117 sq Additionally, some landlords of older in several projects, such as tardy m in the first quarter, increasing projects in the traditional CBD have crowd elevators, induced a flight of greatly from 23,112 sq m in begun to pay more attention on tenants. Q4/2015. City-wide vacancy rates the sense oflocation, redecorating fell 1.9 ppts QoQ to 52.4%. Half and renovating their external walls Vacancy rate of the new take-up this quarter in order to attract more tenants. A new project in Hualongqiao IBD occurred in Jiefangbei CBD, which In contrast, Yangjiaping handed increased vacancy rates in the area;

02 Briefing | Chongqing office sector May 2016

however, city-wide Grade A office GRAPH 3 vacancy rates fell by 2 ppts QoQ to Rental indices by district, Q1/2013–Q1/2016 52.4%, as traditional areas, such as Jiefangbei and Guanyinqiao, Jiefangbei CBD Guanyinqiao Jiangbeizui CBD Hualongqiao IBD Xinpaifang Nanping Yangjiaping Overall witnessed no new supply. Vacancy 190 rates of Xinpaifang, an emerging business district with low rents 170 and an excellent location, fell by a considerable 75%. 150

Financial and Trade industries 130 have grown by 20% and 12%,

respectively, QoQ, generating Q4/2010 = 100 huge demand for the city-wide 110 office market. Some financial companies have adopted strategies 90 of bifurcation, dividing front- and back-office functions across two or 70 three different districts. For example, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Shanlin Financial has three branch 13 13 13 13 14 14 14 14 15 15 15 15 16 offices in the city, with the newest Source: Savills Research branch office located in Jiazhou Sincere Centre A, Xinpaifang. As major relocations and expansion the only project to be handed over in Market outlook typically occur in the first quarter, so Guanyinqiao recently leading some The city’s transformation into a the falling vacancy rate is justunder enterprises to relocate to nearby regional financial centre should normal circumstances. business district in search of lower benefit from further liberalization rents. Grade A office in Guanyinqiao and innovation within the financial Landlords remain cautious, as some were all in bulk-sale, this sell- markets, generating huge office completed buildings have not yet strategy will make a sharp drop of space demand from domestic been handed over in order to time asset value, while the small owner financial enterprises and increasing to avoid peak-supply. As long as against each other on the rent, total city-wide demand levels. there are no large future supply which can easy decline rent. .Investors will continue to favor influxes, vacancy rates are expected office buildings with higher-quality to decrease. Office strata-title facilities and better accessibility, market which might have the better rental Rent Strata-title transaction prices yield. Grade A office rents, which stood rose0.4% QoQ up, averaging RMB at RMB100 almost two years ago, 20,032 per sq m in Q1/2016. Bulk- Over 500,000 sq m of supply is fell by 1.6% this last quarter to an sales posed the greatest risk to expected to be handed over this average of RMB 98.72 per sq m the office strata-title market as this year, of which the majority is located per month. Many existing projects can lower prices and devalue the in the Jiangbeizui CBD. The supply have had to offer rental incentives property. Thus, strata-title prices in influx is expected to push city-wide to maintain occupancy rates as the areas with many bulk-sale projects, vacancy rates up, leading to falling supply influx of the last few quarters such as Guanyinqiao, are likely to be rents.  has increased market competition. unstable when the whole market is The Guanyinqiao district recorded under selling pressure. By contract, the largest decrease in average rent, en-bloc purchasers have remained at 7.3% QoQ. Domestic companies confident, as witnessed by the make up the greatest percentage of recent purchase of Chongqing IFC tenants in area. Rongheng Times is T5 and T6 each by single buyers.

savills.com.cn/research 03 Briefing | Chongqing office sector May 2016

Project Focus Lifan Centre

Jiazhou Xiexin Center A, located in TABLE 1 Xinpaifang, was handed over in Q1/2016 Lifan Centre and provides 22,500 sq m of Grade A office Jiazhou Xiexin Center A, space across 15 floors ( floors 8 to 22 are Location Xinpaifang available for lease ). The building is located on the junction of Lines 3 and 6, providing Developer Chongqing runyijiang group convenient transportation access. The Office GFA 116,400 sq m surrounding area, Xinpaifang, is a relatively affluent neighborhood with high foot traffic No. of office floors 24 and a strong commercial atmosphere. Standard floor height 4m

The asking rent is RMB75 per sq m per No. of lifts 9 month. The project aims to attract private enterprises, with Shanlin Financial already Floor plate 1500sq m

occupying one floors. Only tenant offers over No. of parking spaces 811 300 sq m are accepted. Handover date Q1/2016

Asking rent RMB75 per sq m per month

Source: Savills Research

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