Hong Kong developer Hang Lung Group has shouldered aside Alibaba Group and four other property developers to win a commercial plot in the eastern China city of Hangzhou for RMB10.7 billion ($1.7 billion) — more than double the base price set for the government land tender.
Hang Lung announced its first mainland purchase in five years, and the second-largest land sale ever in the capital of Zhejiang province, in a statement to the Hong Kong stock exchange on Monday.
The developer controlled by Hong Kong’s Chan family said it plans to invest RMB 19 billion to develop the 44,827 square metre (482,514 square foot) Wulin Tianshui Unit XC0105A commercial site in central Hangzhou’s Xiacheng district into a 194,191 square metre commercial mixed-use complex, consisting of a “world-class mall and office tower(s).”
Hang Lung Regains Confidence in Mainland Market After Revenue Slide
“We are thrilled to have successfully acquired this premium site in Hangzhou,” said Ronnie Chan, chairman of Hang Lung Group and Hang Lung Properties in a statement. The ever-loquacious developer added that, “The acquisition allows Hang Lung to further extend into another strategic location in order to capitalize on the opportunities across the Mainland,”
After agreeing to pay the equivalent of over RMB 53,000 per square metre of built area in the Hangzhou project, in Hang Lung’s statement, Chan expressed renewed confidence in the mainland market for commercial properties.
“We have been very optimistic about the commercial and retail market in China,” Chan said. The developer of Shanghai’s landmark Plaza 66 complex on West Nanjing Road went on to say, “This land acquisition aligns with our long-term investment plan and we are confident that we will create great value for the City and Hang Lung from this world-class iconic landmark.”
In 2016 Hang Lung revealed a 56 percent drop in core earnings for 2015, due in part to a challenging leasing situation in mainland China. The developer then suffered a six percent year on year drop in rental revenue for 2016 after it admitted to lowering rents for new tenants at its projects in Shenyang and Wuxi. Although mainland rental income rebounded to RMB 3.1 billion in 2017, it was still below the company’s RMB 3.3 billion mark set in 2015.
Beating Alibaba for Prime Commercial Plot
Hang Lung outbid several of its developer counterparts including Wharf Holdings, New World Development and China Resources Land, as well as e-commerce behemoth Alibaba Group, which is headquartered in Hangzhou.
The plot, which yields up to 194,191 square metres of gross floor area, is located in the prime shopping area Wulin Shangquan in Xiacheng district. Located north of Tiyuchang Road and south of Baijingfang Alley, the site is close to a number of competing retail projects, including the Hangzhou Tower, Hangzhou Department Store and ZheJiang Intime Department Store.
As the only remaining large-scale site for commercial development in Hangzhou’s traditional commercial district, the plot “creates a strong synergy effect with Hang Lung’s flagship projects in Shanghai and Wuxi, and injects new energy into the commercial landscape of the area,” the developer said.
Hang Lung Ramps Up Mainland Developments
The acquisition adds to Hang Lung’s eight commercial or mixed-use developments under operation in six mainland cities including Shanghai, Shenyang, Tianjin, Dalian, Wuxi and Jinan, its latest annual report shows. Hang Lung also has a pair of mixed-use projects under development in Kunming and Wuhan, which are set to open in next year.
The Wuhan project sits on the commercial parcel Hang Lung purchased in 2013 for RMB 3.3 billion. The 82,600 square metre plot is being developed into a mixed-use complex with retail, office and residential elements.
While the group’s malls in the mainland secured an average occupancy rate of 84 percent as at 2017 year-end, the malls Grand Gateway 66 in Shanghai and Olympia 66 in Dalian experienced under-performed last year with occupancy rates at 77 percent and 71 percent respectively.