Partners Group Takes Majority Stake in $1.34B Buyout of Beijing Commercial Complex

The tension between Beijing’s chronic shortage of office space and booming tech sector has triggered a burst of activity in the city’s commercial real estate market this year, including acquisitions of assets in the city’s tech hub worth more than $3 billion since January.

Swiss private equity fund manager Partners Group made public its contribution to this deal total today when it announced that it has acquired a majority equity stake in Dinghao Plaza, a 176,976 square metre (1.9 million square foot) office and retail complex in Beijing’s Zhongguancun area, at a total transaction value of $1.34 billion (RMB 9.02 billion).

The deal for the 16 year-old Dinghao Plaza is the latest instance this quarter of investors acquire commercial assets in the high tech hub near the capital’s Tsinghua and Peking universities in an effort to profit from upgrading the office supply in an area of the city often referred to as China’s Silicon Valley.

Tech Sector Drives Zhongguancun Office Values

“Dinghao Plaza is ideally located in ZGC (Zhongguancun), Beijing’s vibrant tech and media area, where demand for large, contiguous, and premium office space is high and supported by the strong growth of China’s technological sector,” Partners Group managing director for private real estate Asia, Rahul Ghai said in a statement.

Partners Group, which worked together in the deal with a pair of local private equity firms and Bahrain’s The Family Office, is purchasing Dinghao Plaza from Taiwanese developer Sino Horizon Holdings Ltd, which opened the project in 2003.

At a transaction value of RMB 9.02 billion, Partners’ acquisition of the 176,976 square metre facility works out to just over RMB 50,967 per square metre of floor area.

Dinghao Plaza consists of a pair of office towers built around the five-storey Dinghao Market, which long served as one of Beijing’s leading gadget bazaars and home to Lenovo’s flagship store. Mingtiandi first reported Partners Group’s imminent purchase of the asset in November last year.

The project’s office towers host some of China’s best-known venture capital investment firms, start-ups and incubators including Sinovation Ventures, DaDa ABC, Auto Home and Zhongguancun Online.

Renovation on the Way for Beijing Complex

“The acquisition of Dinghao Plaza is a great fit with our longstanding ‘buy, fix and sell’ strategy, whereby we seek out properties in prime locations that can benefit from repositioning with sufficient time and capital,” Partners’ Ghai said in the statement, adding that, “Together with our consortium partners, we plan to undertake a multi-year value creation program which will transform Dinghao Plaza into a core real estate asset.”

Partners’ plan for the project, which benefits from direct underground access to the Zhongguancun station on Beijing’s metro line four, focuses on repositioning under-used retail space in the complex for office use and undertaking a large-scale refurbishment of the existing office towers to bring them to Grade A standard.

Hong Kong’s Gaw Capital took a similar approach with its Pacific Century Place project in Beijing which it purchased in 2014 for $928 million and then resold earlier this year for the equivalent of $1.53 billion after converting a portion of the complex’ retail mall for office use.

Currently, office space in Dinghao Plaza is advertised on local listings sites at rents of under RMB 260 per square metre per month, with parties involved in Partners’ acquisition of the complex indicating to Mingtiandi that the new owners expect to be able to achieve rents of approximately RMB 457 per square metre per month following the refurbishment.

According to information from Savills China, office rents in Zhongguancun currently range as high as RMB 500 per square metre per month.

Tech Companies Compete for Beijing Office Space

The announcement of Partners Group’s investment comes within weeks of two of China’s largest tech firms transforming themselves into property developers in order to secure offices in the Zhongguancun area.

In January the parent company of e-commerce giant JD.com agreed to pay RMB 2.68 billion to purchase the Beijing Jade Palace Hotel, less than three kilometres from the Dinghao Plaza in Haidian district, in order to develop its own office building in the district, which has averaged less than 1 percent office vacancy over the last three years.

Facing the same office shortage, ByteDance, the Chinese tech unicorn behind the hit video chat app TikTok, in February paid RMB 9 billion to acquire the failed Zhongkun Plaza shopping centre to create its own new headquarters in the capital.