1.5 MSF Shanghai Office Trades for $500M

Investors with cash on hand are snapping up premier properties in Shanghai, and SOHO China Ltd.'s purchase of the 1.5 million-square-foot Shanghai New World Changning Commercial Center is among the latest transactions.

August 22, 2011
By Barbra Murray, Contributing Editor

With the tightening of the lending market, investors with cash on hand are snapping up premier properties in Shanghai’s booming office market, and SOHO China Ltd.’s purchase of the 1.5 million-square-foot Shanghai New World Changning Commercial Center is among the latest transactions. The real estate company acquired the mixed-use office property, which it has renamed SOHO Zhongshan Plaza, from Shanghai Trio Property Development Company Ltd. for $500 million.

Zhongshan Plaza sits on nearly four acres in downtown Shanghai’s booming Changning District, surrounded by a bevy of transportation networks. In addition to the Class A office space, the two-tower complex encompasses approximately 136,000 square feet of retail space.

There is something going on in Shanghai’s office market that is not happening in any major metropolitan U.S. city, barring Manhattan, perhaps: occupancy levels below 10 percent. “As China’s economy continues to experience positive growth, domestic and international corporates seek quality office space in Shanghai — its business capital,” real estate services firm Savills Shanghai, which represented SOHO China in the Zhongshan Plaza deal, noted in a second-quarter report.

In the second quarter, the vacancy rate in Shanghai decreased nearly 1 percentage point to 9.2, and dropped from roughly 5 percent to 3 per cent in the high-demand Changning District, as per Savills.

“Despite the handover of considerable supply, excess demand was recorded for the fourth consecutive quarter, raising expectations that a bull market is underway,” the firm reports.

Current conditions are boosting interest among investors with deep pockets. The ongoing credit crunch and increasing interest rates continue to squeeze out borrowers, so those who have cash are snapping up assets that the traditional borrower cannot. SOHO China is among the most active buyers. The company has completed six transactions in Shanghai in the last 12 months. In April alone, SOHO China acquired a commercial-zoned parcel of land in Caojiadu for $255 million and commercial-zoned land in Hailun Lu for $386 million.