BlackRock Marketing Shanghai Office Complex at 30% Off as Vacancy Hits 20-Year High

BlackRock is shopping a pair of Shanghai office buildings at a 30 percent discount to what they paid to acquire the properties in the city’s Putuo district six years ago, according to market sources who spoke with Mingtiandi, as record-high vacancy and sliding rents dent property values in China’s commercial capital.

The world’s largest investment manager by assets began marketing Blocks E and G of the Waterfront Place office complex last year at a price just under RMB 30,000 per square metre, sources confirmed to Mingtiandi, which would price the complex at around RMB 817 million ($115 million).

That price is around 30 percent less than the RMB 1.17 billion which BlackRock paid to acquire the buildings from PGIM Real Estate in December 2017, with rising vacancy and falling rents in Shanghai’s second-tier commercial hubs making such discounts normal, according to agency analysts.

“Right now, a majority of foreign investors who are selling office assets are selling at a discount to cost, so a 30 percent reduction is quite normal,” Jimmy Gu, co-head of capital markets and investment services for Colliers China, told Mingtiandi. BlackRock declined to comment on the transaction.

Falling Occupancy

BlackRock is marketing the Grade A office buildings at a reduced price to accelerate the sale, according to Bloomberg, which first reported the proposed sale and cited people with knowledge of the matter.

At the current asking price, BlackRock is making its Waterfront Place towers available for the equivalent of RMB 29,380 per square metre, after paying RMB 41,971 per square metre to buy them in happier times. Bloomberg first reported the sales initiative.

Situated along Daduhe Road and West Guangfu Road in northwestern Shanghai, the complex is a five-minute walk from Changfeng Park station, which is served by Shanghai metro’s Line 15, and is a 25-minute drive from the Jing’an Temple commercial hub.

The buildings have a combined gross floor area of 27,805 square metres (299,291 square feet),  with Block E spanning 21,162 square metres across 15 storeys while Block G totals 6,643 square metres in gross floor area.

At the time of BlackRock’s purchase, average occupancy for the two blocks exceeded 90 percent and daily rents averaged RMB 6 per square metre, according to JLL, which advised PGIM Real Estate on the transaction.

That compares with the buildings’ current occupancy of 70 percent to 80 percent and average rents of RMB 5.68 per square metre for the Changfeng area as of the fourth quarter of 2023, according to Colliers.

Market Slide

BlackRock’s proposed sale comes as office demand in Shanghai remains under pressure, with vacancy topping 20 percent in the fourth quarter of 2023 for the first time in over two decades, according to a report by consultancy Savills.

City-wide, Grade A office rents in the mainland’s commercial centre fell 5 percent in 2023, with prime, non-prime and decentralised markets declining 4.6 percent, 5.2 percent and 5 percent respectively, according to the consultancy.

“The overall Grade A office market continues to struggle with vacancy rates that have exceeded 20 percent for the first time in over two decades, demand remaining relatively soft, falling rents, and a large pipeline of new supply in the coming years,” James Macdonald, head of research for Savills China, told Mingtiandi.

The market weakness has motivated owners to offload commercial property holdings in the face of what some experts believe could be a prolonged slump in China’s property market.

Earlier this month, Blackstone sold a mid-rise office and retail property on Shanghai’s Central Huaihai Road retail strip to women’s apparel manufacturer EP Yaying Fashion Group for just under RMB 700 million ($99 million).

That deal took place a few days after Hong Kong-listed developer Shui On Land agreed to sell a 65 percent equity interest in an office and retail complex on Changshou Road in Putuo district to a fund controlled by state-owned insurer Dajia Life for RMB 1.2 billion ($170 million).

In December, an investor group including Hong Kong-based private equity firms Gaw Capital and PAG and the merchant banking arm of Goldman Sachs began marketing the Ciros Plaza commercial building on West Nanjing Road.