China Evergrande has added to its project pipeline in Shanghai, with the top mainland developer winning a government land auction of a Hongkou district site this past week.
The Shenzhen-based builder outbid state-run giant China Poly Real Estate to win the rights to a 45,000 square metre (484,376 square foot) mixed-use project behind the city’s International Cruise Terminal for RMB 2.3 billion ($339 million), according to a government announcement on 17 September.
The acquisition adds to a growing concentration of development projects along Shanghai’s waterfront and brings Evergrande into a redeveloping area of Shanghai that has also become a target for international investors in recent years.
North Bund Homes Selling for Over RMB 100K Per SQM
Evergrande’s purchase of the 12,500 square metre site at the intersection of Machang Road and Liyang Road gives it the right to add up to 20,000 square metres of homes to its nation-leading sales machine, with units in the area now called the North Bund currently selling for around RMB 100,000 to RMB 110,000 per square metre, according to Savills.
Planning permits for the plot just over 100 metres from the cruise terminal allow for up to 35.6 percent of the gross floor area to be used for retail, while capping the office portion at 20,000 square metres.
At the announced land premium Evergrande is paying the equivalent of RMB 51,000 per square metre of floor space, according to Mingtiandi calculations. The project also requires the developer to preserve heritage buildings on the site, which pre-1949 formed part of Shanghai’s International Concession when the area served as a haven for immigrants from around the world due to the city’s free port status.
Evergrande’s winning offer came after 36 rounds of bidding and was 10.87 percent above the auction minimum. China Poly was the only competing bidder.
Creating a Potential HQ Location
Given the site’s limited size and proximity to local landmarks, analysts see the acquisition as a safe bet, even as China’s real estate market looks set to cool down after a second quarter surge.
“Residential sales, if they are able to achieve above RMB 100,000 per square metre, should cover a significant component of the overall cost,” said James Macdonald, head of research at Savills China.
The veteran analyst sees the location as potentially fitting with a trend toward developing stand-along headquarters offices to house local corporates, while also pointing to some retail upside. “With a unique location and a relatively small-scale development, individual (commercial) blocks could be perfect for HQ locations, even if it is long term leases versus sales, and retail could be positioned for standalone flagships,” Macdonald said.
The site, which fronts a small creek feeding into the Huangpu River, will connect to other parts of the city via the International Cruise Terminal Station which is just over half of a kilometre away, and is under a kilometre from the city’s historic Waibaidu Bridge.
Hongkou Heats Up
Evergrande’s new Shanghai acquisition puts it just down the road from Raffles City on the Bund, a 1.5 million square metre mixed-use project being developed by CapitaLand, together with Singapore’s GIC, and will make it a neighbour to several projects acquired by international investors in recent years.
At a July meeting organised in Raffles City on the Bund, Bai Xueru, chief engineer for the Shanghai Urban Planning and Natural Resources Bureau, announced the city’s intention to create a new central business district along the Hongkou waterfront, with planners having mapped out 8.4 million square metres of construction projects in the area.
CapitaLand had teamed up with Singapore’s sovereign wealth fund to purchase what is now Raffles City The Bund for RMB 12.8 billion in November of 2018. That project is located just under 1.5 kilometres away from Evergrande’s site along East Daming Road.
Investors from Southeast Asia’s wealthiest city visited Hongkou district again in 2019, with a joint venture between Keppel Land and Alpha Investment Partners agreeing to pay RMB 4.6 billion to purchase a Hongkou office project in March last year.
Shanghai-focused commercial developer Chongbang Group also acquired a Hongkou district site for RMB 7.1 billion in July 2018, just three months after LaSalle Investment Management picked up an office tower in the district.