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New office supply in Tianjin, one of the major commercial cities in northern China, probably will peak this year, further depressing the market and pushing up vacancy rates, according to FPDSavills.

The property consultant expected new supply this year to amount to 209,000 square metres.

A further 237,000 sq metres could come next year if all projects were completed on schedule.

But the firm said work on some projects set for completion next year - including Beiyang Building, Kimming Plaza, Xin Chun Building and Dong Di Li Plaza - had stopped.

Tianjin's previous supply peak was in 1998, with completed new office space exceeding 135,000 sq metres.

Vacancy rates should increase this year as new supply came on the market, FPDSavills said. However, this would not affect projects in central locations.

At the end of last year, the average occupancy rate in grade-A and grade-B office buildings was 77 per cent and 74 per cent, respectively, up from 64 per cent and 70 per cent at the end of 2000.

While average rents for grade-A offices were US$10 per square metre a month, rent at Tianjin International Building was US$25 per square metre, a drop of 16 per cent from 2000.

Tianjin has been one of China's largest commercial cities and is now becoming a commercial and trade centre for northern China.

It boasts designer outlets, chain stores and supermarkets from all over the world. There are now many commercial buildings and top-grade hotels.

FPDSavills said Tianjin's total stock of grade-A and grade-B offices stood at 600,000 sq metres at the beginning of the year and 36 per cent of the stock was completed in 1999 and 2000.

As a result of this huge increase, coupled with a relatively slow take-up, rents for Tianjin's office market were low and vacancies high.

There had been no rent increases since 1996.

However, FPDSavills said the grade-A office market was not likely to be greatly affected because the new supply was in secondary business locations and of grade-B quality.

Furthermore, there were delays to some projects, further offsetting the impact.

Due to a general lack of experience and financing problems, many developments had been postponed, stopped or in some cases did not break ground.

The consultant estimated only 50 per cent of the projects were completed last year.

The firm expected an increase in new demand for office space from foreign companies setting up operations in Tianjin with China's accession to the World Trade Organisation.

It said Tianjin, as one of the four open municipalities in China, was likely to be one of the first cities to be further opened, fuelling expansion of existing companies and newcomers setting up operations in the city.

Finance, Internet-related business and telecommunications were the sectors that would benefit most.

FPDSavills said good quality buildings probably would continue to demand premium rents because of a lack of competition.

Because Tianjin's most established project - Tianjin International Building - already was 10 years old and was showing signs of wear, there was a clear opportunity for a new building to compete with it.



Office supply in Tianjin looks likely to peak this year