Stories of China’s glut of shopping malls rank only slightly behind headlines about its housing bubble for mainland property horror stories, but CPPIB seems to believe there might still be a happy ending for investments in China’s retail real estate sector.
The Canadian pension fund manager just put up $147 million for a 49 percent stake in West Paradise Walk, a six-level shopping mall in the western China metropolis of Chongqing which was completed in 2008. The mall forms part of a combined residential and commercial project in Chongqing’s Yangjiaping commercial hub
“This joint venture fits well with our investment strategy and allows us to invest alongside a highly experienced partner in a high-quality real estate asset that will provide attractive risk-adjusted returns over the long term,” CPPIB’s head of real estate investments for Asia, Jimmy Phua, noted in a statement.
Longfor Finds a Bright Spot in Chongqing
The high quality that Phua is referring to might be the 76,000 square metre (818,000 square foot) facility’s low vacancy rate, with property consultancy Savills reporting in May this year that the mall is 99.4 percent occcupied. Figures provided by Longfor showed that the shopping centre was more than 99 percent full over the past two years and includes among its tenants such high profile brands as Benetton, Diesel and H&M.
Research by developer CapitaLand reports that, while China may have an oversupply of malls in many cities, in Chongqing, the market still looks healthy. The Singaporean giant estimates that malls in prime shopping areas of the city average less than 5 percent vacancy, and the city overall has about 12 percent retail vacancy.
CPPIB’s Chonqing investment follows less than one month after Keppel Land China purchased a newly completed mall in suburban Shanghai for RMB 500 million ($74.9 million), and just a few months after CapitaLand Retail China Trust (CRCT) picked up the Galleria mall in neighboring Chengdu from BlackRock for RMB 1.5 billion ($226 million).
While China’s retail sales have continued to climb in recent years, reports of China’s pipeline of more than 40 million square metres of new malls set to be completed in the next few years has made many investors leary of mainland retail as a category, leaving some solid shopping centres wanting for investors.
Partnership in Paradise: CPPIB Takes Stake in 2nd Longfor Project
The investment is CPPIB’s second deal with Longfor, after the investment management organisation bought a RMB 1.25 billion ($202 million) stake in Times Paradise Walk in Suzhou, Jiangsu province during 2014.
The Suzhou project, which includes residential, office, retail and hotel space, is already operational, with additional phases expected to open between now and the end of 2019. At the time that CPPIB made that first invesment, Zhao Yi, general manager of finance for Longfor, noted that the two firms were looking at opportunities for future cooperation.
CPPIB No Stranger To Chinese Real Estate
Toronto-based CPPIB is no stranger to China having also formed JVs for both residential and logistics projects in the country.
In 2014, CPPIB invested $250 million in a venture with real estate developer China Vanke that focused on new residential developments in large cities across China. The first project by the new company was a development in the Shandong Province city of Qingdao.
The pension fund that manages Canada’s retirement accounts also has a partnership with Australia’s Goodman Group, which focuses on China’s logistics market. Late last year, CPPIB committed an additional $1 billion in the Goodman China Logistics Partnership, which was founded in 2009 and targets warehouse and logistics facilities in the greater Shanghai and Beijing regions as well as key Western China markets.