In the first half of 2020, the Nanjing office market welcomed the Grade A office buildings Guoshou Building and Ogilvy Building in the Hexi Plate into the market, with a total of about 132,000 square meters of new area, and the city's overall stock reached 2.359 million square meters. Looking at the changes in supply, the stock of office buildings in Nanjing has increased by a total of about 270,000 square meters in the past six quarters, an increase of 13% over the end of 2018; the concentration of the supply side into the market has formed a certain pressure on the office market in the short term.
On the demand side, affected by the epidemic and the global economic slowdown, some companies with poor management or cash flow shortages have successively withdrawn from Grade A office buildings with higher rental unit prices. At the same time, in addition to the large-scale professional service industry and the traditional financial industry still actively in the Nanjing Grade A office market, other types of tenants mostly suspend the expansion of enterprises and adopt more conservative leasing strategies under the prospect of greater uncertainty in the general environment. Affected by this, the Nanjing Grade A office market recorded negative absorption in the first half of 2020, and there was still more vacant area in the newly delivered projects, and the vacancy rate rose to 29.5%. At the same time, under the condition of tenants strengthening cost orientation, the demand for new leases and relocation of "cost-effective" Grade B office buildings and office buildings in the park has increased, and the net absorption of Grade B office buildings has improved in the second quarter. On the one hand, this phenomenon shows that the fundamentals of demand are still there, and at the same time, it verifies that the price-for-volume strategy can still effectively attract customer demand.
In the first half of the year, the office leasing game gradually tilted toward tenants, and landlords adjusted their rent expectations accordingly, and the average rent in the city fell by 3.4% compared with the end of 2019 to 120.4 yuan per square meter per month. In addition, the vast majority of landlords have also upgraded the preferential leasing policy with a view to further stimulating leasing activity.
In the next six months, there are still four high-quality office buildings in the Nanjing office market totaling 425,000 square meters to be put into the market, of which the main tower of Sun Hung Kai International Financial Centre and the landmark project Hexi Golden Eagle A are the most eye-catching. On the demand side, we believe that landlord concessions to rents will stimulate the release of demand to some extent, among which tenants whose leasing budgets have not been affected by the epidemic, such as TMT, traditional finance and large enterprises, are expected to take the opportunity to enter the market, adding vitality to the rental market.
In the first half of 2020, the Nanjing retail property market ushered in the Entry of Longhu Longwan Tianjie in the Jiangning Plate, bringing 120,000 square meters of new supply to the Nanjing retail market, and the total retail property stock in the city also reached 3.5 million square meters. On the demand side, due to the impact of the epidemic, demand in the first quarter was affected to a certain extent, and some tenants who were already poorly managed withdrew their leases, and we recorded a net absorption of -26,596 square meters. However, driven by the proper control of the epidemic in Nanjing, the resumption of work and the rapid recovery of consumption, tenants have begun to actively expand their stores. According to the CBRE survey, Nanjing recorded a net absorption of 76,041 square meters in the second quarter, while the vacancy rate in the first half of the year remained at a low level of 5.1%.
Comprehensive analysis of the demand situation, we found that in the first half of 2020, most of the new tenant demand in Nanjing came from the necessities of life, for example, Hema Xiansheng was born in the Oriental Fred Flag Xinjiekou, and the home consumption brand NOME opened in Aqua City. In addition, under the impact of the epidemic, Xinjiekou continues to attract international first-line brands and internet celebrity catering brands; this quarter, Christian Louboutin opened the first store in Nanjing in Deji Plaza, the light luxury brand COACH also set up a fence in The Golden Eagle A Block, and the Internet red hot pot brand Xianhezhuang also planted a flag at Xinjiekou, showing that major brands are full of confidence in the recovery of Consumption in Nanjing and the drainage ability of Xinjiekou business circles after the epidemic.
In terms of rents, although the retail market in Nanjing was hit in the early stages of the outbreak, the rapid recovery of demand has not made the landlords have not made major concessions in the quotation of rents. In the first half of 2020, the rent quotation of the first floor of Nanjing Shopping Center remained at 19.6 yuan per square meter per day, unchanged from the end of 2019.
In the next six months, Qiaobei Vientiane Hui, acquired and remodeled by China Resources, will enter the market at the end of the year, bringing about 100,000 square meters of new supply to the market. On the demand side, under the stable situation of the epidemic, the demand for tenants to expand their stores has gradually recovered; and the projects for closed stores and renovations will also reopen at the end of the year. As a result, we predict that the vacancy rate in Nanjing's retail property market will decline, while there is still room for slight increase in rents.
As an emerging core function agglomeration area built by Nanjing, Hexi CBD will focus on guiding the gathering of two key industries of modern finance and digital technology. Since 2010, a number of high-quality buildings such as SHKP Center have gathered some leading enterprises in domestic and foreign finance and modern service industries to move in. For example, HSBC, ByteDance, China Resources Power and EY are leading enterprises in the flagship building SHKP Center, as well as Huatai Securities, Industrial and Commercial Bank of China, and Bank of Nanjing Zijin Property & Casualty Insurance, which have purchased or built their own headquarters in Hexi.
During the same period, the Jianye District Government vigorously introduced high-tech and digital technology industries in the Xincheng Science and Technology Park, which is only one stop away from Yuantong, a transportation hub in Hexi CBD. With policy support and the advantages of building cost performance, leading TMT enterprises such as Alibaba, Xiaomi Technology and Bilibili have successively settled in, making the industrial agglomeration of Xincheng Science and Technology Park and the high-end business sector of Hexi CBD form a complementary and mutually reinforcing development trend.
Since 2019, with the entry of another batch of high-quality office buildings such as IFC and Hexi Golden Eagle, Hexi CBD has ushered in a new round of expansion and upgrading. Its China Gold Center has successively introduced a number of well-known foreign-funded enterprises from Capital Bank, Shell and Saiwei Drive, especially the relocation of professional service tenants such as Deloitte and AllBright Law Offices from Xinjiekou, indicating that the Hexi CBD has the elements to become a top business district in Nanjing. According to CBRE's data, as of the first half of 2020, the leased area of hexi CBD leased high-quality office buildings has exceeded 600,000 square meters; the gap between its office rent and the Xinjiekou plate has gradually narrowed.
From the perspective of industrial agglomeration and business district development, the Solid Foundation laid by hexi CBD in the past 10 years is entering a new round of rapid growth. In the next 1 to 3 years, the IFC project complex will open a well-known international hotel ANDAZ and IFC Mall, the commercial quality and radiation capacity of Hexi CBD will be further improved, and the dual center pattern of Xinjiekou and Hexi CBD will accelerate.
"In the first half of 2020, under the influence of the peak supply and the epidemic, the Nanjing office market showed more of the characteristics of the "tenant market", and landlords remained flexible in terms of rent quotations and preferential terms. CBRE recommends that tenants can use this time window to strategically optimize their corporate real estate such as relocation, integration, and upgrade. In the retail market, with the smooth progress of the resumption of work and market, it is expected that the brand store expansion will gradually strengthen in the second half of the year. At the same time, the trend of Nanjing's commercial territory moving towards a "one-core, multi-centrid" pattern with the trend of population agglomeration will create new opportunities for retailers' distribution and expansion, and Hexi CBD is undoubtedly one of the priority options. ”