2010 Global Market Report - NAI Commercial Real Estate

Chengdu, ChinaHong Kong, ChinaContactNAI New Space RealEstate Co., Ltd.+86 28 6653 6999Country DataArea (KM 2 )GDP Growth (%)GDP 2009 (US$ B)GDP/Capita (US$)Inflation Rate (%)UnemploymentRate (%)Interest Rate(%)1334.38.5%$4,757.74$3,565.73-0.06%4.3%5.31%Population (Millions) 1334.3The capital city of the Sichuan province and a key commercialcenter in western China, Chengdu maintained the trend ofrapid growth in 2009 despite the current economicsituation. According to statistics published by the ChengduStatistical Bureau, by the end of Q3 2009, the city’s GDPamounted to RMB 316.46 billion, up 14.2% compared withthe same period in 2008.Invetsment in fixed assets totaledRMB 290.58 billion, up 40% compared with the sameperiod in 2008. Meanwhile, the consumer price indexincreased 0.1% in Q3, up 0.3% over the previous quarter.During the last three quarters, total investment in fixedassets in Chengdu reached RMB 29.058 billion, up 40%.Investment in commercial and residential development andreal estate sales is strong and continuing to increase.According to statistics, during the first nine months of 2009,overall investment in Chengdu totaled RMB 15.705 billion,an increase of 73.6%, outpacing the increase of investmentin fixed assets by 33.6%. Sales of commercial real estatein the city reached 1.8 million SM, up 73.6%; and sales ofresidential real estate reach 1.7 million SM, up 40% comparedwith the same period in 2008.The Chengdu market has a total inventory of approximately460,000 SM of Class A space and 891,000 SM of Class Bspace. Office vacancy rates continue to decline and currentlystand at 23.1%. However, leasing activity has slowed andnet rental rates for top quality space has come down toattract and retain tenants. In the short term, we expect theleasing market will be stable in Grade A office space andvacant space will be absorbed. However, a large number ofnew office developments will add to the existing supplyin Chengdu from 2010 to 2011. Over 740,000 SM areexpected to be delivered over the next three years.The industrial sector is driven by Chengdu’s location andrising prominence as a hub city for logistics/distribution, andthe retail market is dominated by department stores and bigbox retailers.All property sectors in Chengdu should continue to benefitfrom a growing headquarters presence of multinationalcompanies, along with economic development efforts andpreferential policies designed to boost investment in the cityand the region.ContactNAI Asia PacificProperties, Ltd.+ 852 2281 7800Country DataArea (KM 2 )GDP Growth (%)GDP 2009 (US$ B)GDP/Capita (US$)Inflation Rate (%)UnemploymentRate (%)Interest Rate(%)1334.38.5%$4,757.74$3,565.73-0.06%4.3%5.31%Population (Millions) 1334.3Buffered by low levels of real estate debt and by capitalinflows from China, Hong Kong did not see a contraction inits real estate markets until October 2008. However,the steep decline in Q4 2008 continued into 2009, asHong Kong’s GDP growth contracted by 7.8% in Q1. Withthe government’s announced stimulus package of HK$87.6 billion (approximately 5.2% of GDP), the contractiondecreased to -3.8% in Q2 2009 and helped stabilize themarkets, coupled with a change in global sentiment.Commercial real estate followed a similar pattern. Rentsacross all sectors declined 20-30% from their peaks inQ3 2008, and began to stabilize in the second half of 2009.In the office market, Lehman Brothers’ collapse triggereda rapid contraction and relocation of the financial sector,creating a surge in CBD vacancies to 8% and a 30% declinein rents. However, the historically limited supply of primeoffices led some replacement tenants to move into the CBDonce liquidity returned in mid-2009 and vacancies fell to 5%.Industrial demand fell sharply in the first half of 2009 as thetrade and logistics sectors suffered, though rents fell by only20% from already low levels. Exits from the industrialinvestment sector by several prominent institutions andcontinued high vacancies have dampened the rebound incapital values. The crisis also triggered several retail chainconsolidations and rents fell by 20% in the first half of theyear. Supported by the return of Mainland Chinese tourists,rents and value in core districts have rebounded to pre-crisislevels during the second half of 2009.From an investment perspective, high yields of 6-7% in Q42008 triggered speculative purchases of over HK $4 billionof assets in Q2 and Q3 2009, with yields dropping to 3.5%.Capital values rebounded 30% despite continued declinesin rents and yields. Conversely, in early Q4 2009 rents beganstabilizing while capital values showed signs of weakening.This paradox highlights the volatile nature of Hong Kong’sreal estate market, which does not always follow currentfundamentals, but rather a mix of long term sentiment andnear term speculation, while heavily influenced by capitalinflows from China.At the end of 2009 the outlook for 2010 was mixed, withmarket pundits promoting a 5-15% recovery in 2010, despiteeconomists worldwide predicting a weak global economy andbubble-like symptoms in Hong kong and China. Our viewis that long term investment into China will support HK’seconomy and real estate market and any retraction will belimited in 2010.Chengdu At A GlanceConversion: 6.83 RMB = 1 US$ RENT/M 2 /MO US$ RENT/SF/YRLow High Low High VacancyDOWNTOWN OFFICENew Construction (AAA)Class A (Prime)RMB 1,380.00 RMB 1,440.00RMB 1,380.00 RMB 1,440.00$ 18.77$ 18.77$$19.5919.59N/AN/AClass B (Secondary)SUBURBAN OFFICERMB 648.00 RMB 720.00 $ 8.81 $ 9.79 N/ANew Construction (AAA)Class A (Prime)RMB 1,080.00 RMB 1,200.00RMB 1,080.00 RMB 1,200.00$ 14.69$ 14.69$$16.3216.32N/AN/AClass B (Secondary)INDUSTRIALRMB 540.00 RMB 600.00 $ 7.35 $ 8.16 N/ABulk WarehouseManufacturingHigh Tech/R&DRETAILDowntownNeighborhood Service CentersCommunity Power CenterRegional MallsSolus Food StoresRMB 108.00RMB 108.00RMB 432.00RMB 432.00RMB 648.00RMB 648.00RMB 432.00RMB 648.00RMB 120.00RMB 120.00RMB 480.00RMB 480.00RMB 720.00RMB 720.00RMB 480.00RMB 720.00$$$$$$$$1.471.475.885.888.818.815.888.81$$$$$$$$1.631.636.536.539.799.796.539.79N/AN/AN/AN/AN/AN/AN/AN/ADEVELOPMENT LAND Low/M 2 High/M 2 Low/Acre High/AcreOffice in CBDLand in Office ParksLand in Industrial ParksOffice/Industrial Land - Non-parkRetail/Commercial LandResidentialN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AHong Kong At A GlanceConversion 7.75 HKD = 1 US$ RENT/SF/MO US$ RENT/SF/YRLow High Low High VacancyDOWNTOWN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)SUBURBAN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)INDUSTRIALHKD 80.00HKD 45.00HKD 20.00HKD 25.00HKD 20.00HKD 12.00HKD 120.00HKD 105.00HKD 50.00HKD 40.00HKD 25.00HKD 15.00$$$$$$0.960.540.240.300.240.14$$$$$$1.441.260.600.480.300.185.0%8.0%10.0%25.0%10.0%15.0%Bulk WarehouseHKD 8.00 HKD 15.00 $ 0.10 $ 0.18 15.0%ManufacturingHigh Tech/R&DRETAILDowntownNeighborhood Service CentersCommunity Power CenterRegional MallsSolus Food StoresHKD 10.00HKD 15.00HKD 250.00HKD 50.00HKD 25.00HKD 100.00N/AHKD 15.00HKD 20.00HKD 800.00HKD 100.00HKD 40.00HKD 300.00N/A$$$$$$0.120.183.000.600.301.20N/A$$$$$$0.180.249.591.200.483.60N/A10.0%15.0%3.0%15.0%10.0%5.0%N/ADEVELOPMENT LAND Low/M 2 High/M 2 Low/Acre High/AcreOffice in CBDLand in Office ParksLand in Industrial ParksOffice/Industrial Land - Non-parkRetail/Commercial LandResidentialN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/AN/A N/A N/A N/A2010 Global Market Report ■ www.naiglobal.com 28