SOHO China, the Beijing-based real estate developer controlled by celebrity entrepreneurs Zhang Xin and Pan Shiyi, confirmed on Friday that it has sold a commercial building in Shanghai’s Pudong district to a mainland insurer for RMB 3.2 billion ($485 million).
After originally announcing the sale in March of this year, the developer revealed the final terms of the sale of Soho Century Plaza to Shanghai’s Guohua Life Insurance (國華人壽保險股份有限公司) in a statement to the Hong Kong stock exchange.
Guohua’s acquisition comes as mainland institutional investors compete for a limited number of core office properties in China’s largest cities.
Pudong Office Demand Helps SOHO to a Profitable Exit
Continued strong demand for office space in Shanghai’s Pudong financial district helped SOHO to drive a hard bargain for the 24-storey project. With Lujiazui now estimated to be at 97 or 98 percent occupancy, buildings just up Century Avenue in SOHO Century Plaza’s Zhuyuan neighborhood are now averaging less than six percent vacancy, according to recent figures from JLL.
The four year-old office tower, which is located at the intersection of Xiangcheng Road and Century Avenue, has a net lettable area that includes 42,522 square metres of office space, and 432 square metres of retail space, which makes Guohua’s final price per square metre of net lettable area RMB 75,001 ($11,300).
SOHO’s sale comes just one year after two other major commercial buildings in Zhuyuan changed hands for a combined 4.87 billion, including Hong Kong-listed Yuexiu REIT buying the Hongjia Tower on Fushan Road for RMB 2.63 billion, and Ping An Insurance buying the GC Tower on Yuanshen Road for RMB 2.24 billion.
Restricted Capital Market Driving Up Mainland Property Values
With China’s office market still maturing, core commercial properties such as SOHO Century Plaza have become the subject of fierce competition among domestic institutional investors, particularly as paths to cross-border investment have been choked off in 2016.
Premium revenue for China’s insurance industry nearly doubled over the last five years, reaching RMB 2.4 trillion in 2015, up from just RMB 1.3 trillion in 2010, according to government data. With China eager to stablise its capital market this year and avoid downward pressure on the renminbi, this growing pile of capital has been bottled up in a market where the growth in high-yielding assets has struggled to keep pace with the amount of capital searching for return.
For SOHO China, which bought the then nearly-completed Century Avenue project for RMB 1.89 billion in August 2011, the combination of a fast-growing domestic finance industry and a semi-permeable cross-border investment environment has led to a profitable result for one of China’s highest profile real estate developers.