China Reinsurance has completed the acquisition of a newly completed commercial property in Shanghai’s Lujiazui area for RMB 3.09 billion ($440 million), according to an announcement yesterday by Cushman & Wakefield.
The Hong Kong-listed insurer, which is controlled by mainland sovereign wealth fund CIC, purchased Building 1 of the Shanghai Fuyuan Landmark Plaza from a joint venture between top-five mainland developer Sunac China and Shanghai Land-affiliate China Enterprise.
The completion of the acquisition comes sixteen months after China Reinsurance agreed to forward-fund the 36,000 square metre (387,500 square foot) office property near the banks of the Huangpu River.
“The unparalleled river view and convenient access to core Lujiazui will win the favour of end-users, especially for those who have an incentive to establish their corporate image in Shanghai and can benefit from the agglomeration of the financial industry,” said Eric Lu, executive director of capital markets in East China for Cushman & Wakefield, which represented China Reinsurance in the acquisition.
Taking Over Lujiazui Office Tower
Originally slated for retail use, the tower on Yuanshen Road was redesigned as an office building, and is one of four office blocks within the development.
China Reinsurance has now taken full possession of the vacant property, after the Sunac-China Enterprise JV delivered it on a turnkey basis, with the Hong Kong-listed insurer paying 70 percent of the consideration prior to the handover, with the remaining 30 percent due by the end of this year now that the building has been completed, as per the original bourse filing announcing the acquisition.
Cushman & Wakefield said that the office space in the tower is expected to fetch between RMB 7.5 and RMB 9 per square metre per day, which could generate up to RMB 9.9 million per month for the new owner if the building is fully leased, according to Mingtiandi calculations.
Targeting a Steady Income Stream
Based on the transaction price of RMB 3.09 billion, the insurer is paying RMB 86,111 per square metre for the 18-storey commercial building, which was completed at the end of 2019.
“The company believes that the acquisition of the property for investment purposes provides an investment opportunity for the group to obtain stable rental income and to seize the potential growth of the capital value of the property,” the insurer said in its 2018 announcement.
The office tower, which is within two minutes walk of the Yuanshen Road station on Shanghai’s metro line six, is less than three kilometres south of the Lujiazui financial district.
Vacancy Still Limited in Lujiazui
Despite growing vacancy in other parts of Shanghai, China Reinsurance’s new prize has been delivered in one of the city’s most crowded office locations.
Lujiazui saw vacancy rates drop slightly in the first quarter compared with the same three months last year – from 18.2 percent to 18 percent, according to a report published last week by Cushman & Wakefield.
Despite the area continuing to be among the most sought after of Shanghai’s core submarkets – rents in Lujiazui nevertheless slipped 2.34 percent during the period from January through March — falling from RMB 350.1 per square metre per month in the first quarter of 2019 to RMB 341.9 in the first three months of this year.
Cushman & Wakefield noted that the downward pressure on rents across Shanghai was in part due to the impact of the coronavirus pandemic, with companies being squeezed by the drop in economic activity, but the property consultancy noted that it expects future supply in the city to place “continued pressure on the market and dampen rentals over the next several months”.
China Gets Back to Work
Lu told Mingtiandi that the company has already seen evidence in China, and especially in Shanghai, that transactions of commercial real estate have begun to recover from the impact of the coronavirus pandemic – a recovery that he attributes to the strict measures that have been imposed to curb infection.
“Generally speaking, in the long term, we remain optimistic towards the Shanghai commercial property market,” Lu said.
The Cushman & Wakefield executive expects the investment pipeline for prime opportunities in Shanghai to bounce back from the health scare, especially for those who already have a presence in the city.
“One more thing to note here is that for most of the deals in progress, the acquisition negotiations are still ongoing,” Lu added.