Private Shanghai Developer Braves Pandemic to Pay RMB 6B for Jing An Site

A little-known mainland developer has braved the economic uncertainty caused by the COVID-19 pandemic to buy a commercial site in central Shanghai’s Jing An district for RMB 6 billion ($850 million), according to a government announcement.

Lanhai Holdings Group, which also developed the Lanhai International Plaza in Lujiazui, won the 32,779 square metre (352,830 square foot) plot on 21 April, after being the only developer to enter a bid for the site 1.5 kilometres (.93 miles) north of Jing An Temple.

In the government land sale the private developer helmed by local entrepreneur Mi Chun Lei made the plot Shanghai’s second-largest land acquisition so far in 2020, after Hongkong Land agreed to pay a record RMB 31.05 billion for a development site in the city’s Xuhui district during February.

Planning for a Prime Jing An Plot

Officially labelled as parcel No. 023-7 Unit C050201, Lanhai’s new prize is approved for construction of a mixed office and retail building with a gross floor area of up to 118,000 square metres – no more than 70 percent of which can be used as office space. At the RMB 6 billion land premium, the developer is paying the equivalent of RMB 50,847 per square metre of finished space.

Bounded by Xikang Road to the east and Changde Road to the west, the full city block plot lies just south of Changping Road and stretches southward to Kangding Road. The site enjoys direct access to Changping Road station on Shanghai’s metro line 7, just one stop north of the Jing’an Temple interchange.

Although located in an area which has served primarily as an upmarket residential neighbourhood, the site is just a few blocks north of the bustling West Nanjing Road strip, with Hang Lung Properties’ Plaza 66, and Kerry Properties’ Jing An Kerry Centre both within a two kilometre radius.

Founded in 2003, Lanhai is controlled by Shanghai businessman Mi Chunlei, who is also the chairman of Shanghai-listed Lanhai Medical Investment, Shanghai Life Insurance and Shanghai Hefeng Real Estate Co, Ltd. A low profile actor in China’s commercial capital, Mi, now 46, is best known for having married CCTV personality Dong Qing in 2016.

Under the terms of the land sale, Lanhai is required to preserve the former base of Jinan University on the site, setting aside 322 square metres of the plot for the heritage building.

Braving the Pandemic

Savills’ head of research in China, James MacDonald, said that given the location the price Lanhai paid is in line with market expectations of around RMB 50,000 per square metre for the commercial site.

With the land earmarked for a high-end project, Savills estimated that the office portion of the property could be leased for between RMB 8 to RMB 10 per square metre per day at current market rates, while the retail component might fetch between RMB 15 and RMB 25 per square metre per day.

The property consultancy noted that after completion, in five or six years’ time, rents would probably be between 10 and 20 percent higher for both portions of the property.

Buying Commercial Land as Rents Slide

Lanhai has picked up its slice of prime Shanghai land as office rents in the city suffered a quarterly fall of 0.9 percent in the first three months of the year as the COVID-19 pandemic froze business activity and cooled down leasing rates.

With economic activity remaining slow, Savills’ Macdonald predicted that demand for office space would remain weak in the coming months, while anticipating that corporate leasing requirements may evolve amid the fallout of the coronavirus.

“Longer-term there may be more fundamental questions about how people, companies and individuals use office space with an increase in work-from-home or flexible working,” the Savills China research chief said, noting that these arrangements are unlikely to be applicable to all industries.

According to Shanghai land transaction records, the city has sold 85 land plots so far this year, which include a total land area of 3.3 million square metres, a projected built area of 7 million square meters, and a total price of RMB 83.7 billion.

To boost the real estate sector, the Shanghai municipal government said this month that it would be implementing measures to accelerate the process of transferring land as well as increasing the annual land supply quota.