China Resources Land and Friends Outbid SHK, Swire to Win RMB 5.8B Shanghai Site

A consortium led by state-backed China Resources Land outbid Hong Kong’s Sun Hung Kai Properties and a joint venture between Swire Properties and Ping An Real Estate to win a commercial site in Shanghai’s Jing’an district for a record RMB 5.8 billion ($854 million), according to an announcement by the city government on January 24th.

The three finalists in the auction battled through more than 500 rounds of bidding for the rare, 9,357 square meter commercial plot in central Shanghai, before the joint bid by China Resources Land, CITIC and financial data provider Shanghai Wind Information Co, Ltd won the plot along Shimen Yi Lu, just south of the West Nanjing Road metro station.

Together the mainland trio agreed to a price more than 23 percent higher than the auction’s starting price of RMB 4.8 billion, and will be paying the equivalent of RMB 65,200 per square meter of above ground gross floor area for their new prime prize.

Jing’An Site to Yield Nearly 89,000 SQM of New Offices

The plot, officially known as Jing’an District Nanxi Community C050401 Unit 115-12, is located just south of Jing’an’s  West Nanjing Lu commercial strip and can yield up to 88,966 square metres of office space at a plot ratio of 9.49. The parcel has already been approved for construction of a 180 meter tall office building, which will be complemented by an underground retail center connected to metro lines 12, 13 through the West Nanjing Road station, which also has above ground access to metro line 2.

Under the tender rules stipulated by the Shanghai Bureau of Planning and Natural Resources, the buyers of the project must maintain 100 percent of the property during the entire holding period, which is 40 years for the retail space and 50 years for the office component. The new owners are also required to reconstruct three demolished historical buildings previously located on the site and build an eight-meter-wide public underground passage connecting to metro lines 12 and 13.

Completed office projects in the vicinity are currently charging average achievable effective rents of between RMB 9 to RMB 12 per square meter per day for mid-zone floors, excluding management fees, according to Savills Research.

Setting a New High-Water Mark for Commercial Land

The acquisition price for the site across Shimen Yi Lu from HKRI Taikoo Hui, broke the commercial land auction record of RMB 56,079 per square metre which was set in July of last year when a joint venture between Shui On Land, China Pacific Insurance Co. Ltd and Shanghai Yongye Group bought a site near Xintiandi for RMB 13.6 billion.

In explaining the ability of the mainland consortium to secure the prime commercial prize despite tightening liquidity in China, James Macdonald, head of research China at Savills told Mingtiandi that while some Chinese developers are relatively strapped for cash, a more robustly capitalised elite may be more eager than their overseas counterparts to secure landmark developments in leading cities such as Shanghai.

“A number of international developers already have projects in prime locations of Shanghai. While they’re eager to secure more sites, they are more conservative in their pricing, especially as the recent expansion of the commercial markets to new locations such as Qiantan and North Bund has created alternatives to Shanghai’s traditional prime locations,” Macdonald added.

Prime Sites Still Draw a Crowd

According to data from the research team at Savills, the plot was also the first significant commercial site to go on sale in the core sector of Jing’an district since Houston-based developer Hines purchased a development on Xinzha Road, which is now One Museum Place, for more than RMB 3.7 billion in 2013.

“Although the broader property sector in Shanghai is slowing down, the extreme rarity of such a site still carries extraordinary land value and it’s only expected that it would be chased after by the better equipped developers,” Yan Yuejin, research director for the E-house China R&D Institute told the local media.

Yan added that the acquisition will improve China Resources Land’s brand image in Shanghai’s commercial real estate sector, but may also challenge its capability to develop a top notch commercial project.

Shenzhen-basedChina Resources Land a central government-owned enterprise that generated RMB 210 billion in contracted sales in 2018. It is also one of China’s largest commercial landlords, with its flagship mall brand MixC operating projects in 10 mainland cities.