The world’s largest asset manager has just bought a piece of Shanghai’s office market as demand for real estate assets in China’s commercial capital continues to grow.
BlackRock has paid RMB 1.37 billion ($199 million) to Hong Kong Shanghai Alliance Holdings Ltd to purchase an office building on Changshou Road in central Shanghai, according to announcements by the Hong Kong-listed firm to the Hong Kong stock exchange.
BlackRock is buying Shanghai Central Park 中国港中旅大厦, a circa 2006 office project, after an extensive renovation by Hong Kong Shanghai Alliance of the 27-storey tower in 2015.
Getting a Lift From Shanghai’s Metro System
Sources familiar with the transaction told Mingtiandi that BlackRock had made the purchase through its Asia Fund IV at a pro forma cap rate of 4.15 percent, according to data from property information provider Real Capital Analytics. The transaction, which works out to around RMB 43,222 per square metre of gross floor area, was conducted through a purchase of equity in an offshore project company and the disposal was unanimously approved by Hong Kong Shanghai Alliance shareholders at a meeting on March 5th.
Located at 828-868 Changshou Road in Putuo District the project sits opposite Wuning Road metro station, which opened in 2015, connecting the 31,697 square metre (341,188 square foot) building to West Nanjing Road station and the former Shanghai Expo site. The property includes a three-storey retail podium, with offices from the fifth through the 27th floor.
The location is just north of Shanghai’s Jing An district and the building, which was known as the China CTS Tower before its renovation, will also be linked to Lujiazui when metro line 14 connects to Wuning Road station. That subway service, which started construction last year, is expected to be completed by 2020.
BlackRock Sees Potential Upside in Older Buildings
In a 2015 report co-authored by BlackRock Asia Pacific real estate head John Saunders, the New York-based manager of over $5 trillion in assets stated its interest in buying and upgrading established office properties in Shanghai.
“We also see opportunities to refurbish older offices within the CBD now that land is scarce,” Saunders and his co-authors said at the time. Adding that, “Little can be done to raise ceiling heights, but there are plenty of improvements to the physical plant that can result in higher achievable rents, such as bringing the mechanical and electrical systems up to modern specification, making the HVAC more efficient and green, upgrading the lifts and bathrooms, as well as other cosmetic factors that make a building more pleasant to work in.”
A survey of current listings for offices in Shanghai Central Park show units available for an average of RMB 6.9 per square metre per day, and data from Real Capital Analytics indicate that the building was 86 percent leased as of last month. However, that high rate of vacancy could also be taken as an opportunity for more revenue.
“Shanghai Central Park is only ten minutes drive from Jing An Temple, and it has many leases coming up for renewal in the next two years. With demand for office space growing in downtown Shanghai, and given effective asset management, there’s great opportunity to fill up the building and increase rental income,” sources familiar with the transaction told Mingtiandi on condition of anonymity.
Office rental rates for grade A space in core Jing An district now average RMB 11 per square metre per day, according to the most recent report from international property consultancy Cushman & Wakefield — around 37 percent more than the rates currently being achieved at Shanghai Central Park.
“This transaction indicates that Shanghai continues to be an attractive investment destination amongst Asian markets,” said Terence Tang, Managing Director for Capital Markets & Investment Services for Asia at Colliers International. Tang, whose firm advised Hong Kong Shanghai Alliance on the disposal, added that, “The stabilised Chinese economy and containment of Chinese capital flow will continue to augur well for mainland China real estate. We will see both local and pan Asia Institutional capital continue to invest actively in China.”
Hong Kong Materials Company Hits Again in Shanghai
For Hong Kong Shanghai Alliance, this is the second time that this particular Shanghai neighborhood has been good to the company formerly known as Van Shung Chong Holdings.
The company bought the now former CTS Tower from China Travel International in December 2013 for $116.2 million, according to RCA data.
That acquisition came just two months before the Hong Kong-based company, under its former name, sold a building less than a kilometre away to US cosmetics firm Mary Kay for a reported RMB 820 million. The company had held that 11-storey office property together with joint venture partners Nanyang Holdings and Celestial Asia Securities Holdings,
Also in 2014, Hong Kong Shanghai Alliance – whose main business is specialty steel products – also purchased the Metro Park Service Apartment through a fund it had established, and later renamed that asset as Park Lane in 2015. The Hong Kong-listed firm has now built a significant real estate business in Shanghai. In 2015 the company acquired Chuang Yi Tower (創屹商務大廈) in Pudong for RMB 801 million, and has since renamed that property Central Park Pudong.