Hong Kong’s Nan Fung International Holdings has won the rights to a commercial plot in Shanghai’s Changning district after the developer agreed to pay RMB 2.4 billion ($352 million) to purchase the site at a government land auction this past week.
The unit of privately-held Nan Fung Group said in a statement to investors that it will develop the location at the intersection of Xianxia Road and Loushangguan Road in the Gubei commercial hub into an office building, which could measure up to 53,578 square metres (576,708 square feet) of above ground built area.
Nan Fung won the site in western Shanghai after fighting off bids from four competing developers and agreeing to pay a price more than 49 percent above the auction reserve, as corporate occupiers begin to show more interest in office locations outside of the city’s prime commercial hubs.
Adding a Third Commercial Project in Gubei
“With the acquisition, our presence in Shanghai will be further strengthened,” Nan Fung representatives said in the statement, while adding that, “In particular, as the subject site is within walking distance from our flagship project, The Place, we expect significant synergies will be created between these two projects upon the completion of development.”
The Place is Nan Fung’s early 2000s-vintage commercial complex just five minutes away on Xianxia Road, which includes a trio of office towers above a retail mall facing Zunyi Road at the intersection of Xianxia Road.
In addition to the 270,000 square metres of commercial space which it owns at The Place, during April this year, Nan Fung also formed a joint venture with a unit of municipal government-owned investment firm Shanghai Industrial Holdings to buy out Shanghai Mart, a commercial complex in Gubei.
That joint venture paid $579.3 million to acquire a company which holds a 99 percent stake in the 280,000 square metre complex, according to an announcement to the Hong Kong stock exchange.
With Shanghai Mart located around one kilometre south of The Place at the intersection West Yan’an Road and Gubei Road, following the completion of its latest acquisition, Nan Fung will have a stake in approximately 550,000 square metres of commercial space in Gubei. Some 163,000 square metres of that commercial property will be grade A offices in as rents throughout the Hongqiao area average RMB 7.2 per square metre per day, according to the research team at Savills in Shanghai.
While typical secondary commercial hubs in Shanghai’s Puxi area are currently averaging over 16 percent vacancy, according to the consultancy’s figures, the Hongqiao area averages just 8.4 percent vacancy, thanks in part to what Savills terms a robust business community in the area. Gubei, in particular, remains a location of choice for Japanese and Korean corporates.
Property to Be Maintained En Bloc
Nan Fung’s winning bid equates with a value of just over RMB 45,178 per square metre of space to be built on the 15,308 square metre commercial plot. The conditions of the tender also require the developer to devote part of the project to construction of a 3,000 to 4,000 square metre cultural facility and cultural park space of not less than 6,000 square metres to improve conditions in Changning district.
Nan Fung’s competitors in the two rounds of bidding have been identified as Shenzhen-based Gemdale Properties and Investment, fellow Hong Kong player K Wah International, Zhongtian Holdings Group and a private company named Highpower Investment and Management Ltd.
The conditions of the 50-year land use right require that the property, which will also include 4,400 square metres of below-ground commercial space, be maintained under en bloc ownership with unified management.
Secondary Business Hubs Gain Favour in Shanghai
The nearly 50 percent premium which Nan Fung is paying above the auction minimum price comes as corporate tenants show an increasing interest in non-core office locations in Shanghai.
Overall activity in the city’s office market was only moderate during the first three months of the year, according to JLL which found that net take-up in Pudong’s core areas declined in the period from January through March.
However, offices in non-core locations, such as Gubei, which offer lower rental rates than Lujiazui or West Nanjing Road, were responsible for around 133,000 square metres of new leases during the first quarter, according to JLL.
Nan Fung’s new site, while outside of the prime business hubs, is two blocks west of the Yan’an Road elevated highway, and around 10 minutes walk south of the Loushangguan Road station on Shanghai’s metro line 2, which carries riders eastward to Nanjing Road or the Pudong financial district.
The Hongqiao neighbourhood is already becoming more crowded with the debut of nearby projects such as SOHO Gubei, a 158,648 square metre complex which opened in March. That Kohn Pedersen Fox-designed project is part of wave that will bring around 230,000 square metres of office supply into the market within the next three years, according to Savills.