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Friday, January 5, 2024

Blackstone Sells Commercial Building on Shanghai’s Huaihai Road for $99M

WeWork occupies the upper floors of the property at 627 Central Huaihai Road

Blackstone has sold a commercial building along Shanghai’s Central Huaihai Road shopping strip as the US private equity giant offloads investments in the face of what some experts believe could be a prolonged slump in China’s property market.

Huaihai 627, a mid-rise office and retail building anchored by co-working space provider WeWork, was acquired by Jiaxing-based women’s apparel manufacturer EP Yaying Fashion Group for just under RMB 700 million ($99 million), according to market sources familiar with the transaction.

“As the much-anticipated consumption recovery gets underway, the scarcity of high-quality commercial properties in core areas of first-tier cities has become increasingly apparent,” said Jimmy Gu, co-head of capital markets and investment services for Colliers in China, who advised on the transaction.

The sale, which marks the latest case of Chinese corporates buying premises for their own use amid the current downturn, closed last month, according to MSCI. Blackstone had not responded to Mingtiandi inquiries by the time of publication.

Rare Trade

Situated at the intersection of Central Huaihai Road and Sinan Road, where Shanghai’s Huangpu district meets Jing’an and Xuhui, the building is located near major retail projects including Xintiandi and Sun Hung Kai’s IAPM mall. The property is a three-minute walk from the Central Huaihai Road station, which is served by Shanghai metro line 13.

Justin Wai, head of China real estate at Blackstone

“There have been relatively few assets for sale along Huaihai Road in the past, as it is a pretty mature/stable submarket and is typically fully valued. In the past, investors looked for value-add opportunities in emerging locations, now they are looking for core locations and stability,” James Macdonald, head of research for Savills in China told Mingtiandi.

Based on the acquisition price, the asset changed hands at a price of RMB 79,686 per square metre. The valuation factors in the limited duration remaining on the property’s land lease, which is set to expire in January 2039, according to local media accounts.

The building, which was constructed in 1995 as the Xue Bao Mall, has a total floor area of 8,784 square metres across six above-ground storeys and a basement level. WeWork occupies the top three storeys, while the remaining floors are leased to F&B, fitness, apparel, and lifestyle shops.

Blackstone acquired the asset in the fourth quarter of 2016 from Hong Kong-based real estate private equity firm Starcrest Capital ↗ for a reported price of RMB 620 million (then $93 million) and repositioned the project as a trendy retail and office property through an eight-month renovation.

End-Users Pile In

The purchase by EP Yaying, which has roughly 800 stores across 210 cities in China, is the latest acquisition of a commercial property by a mainland corporate for self-use, as well-capitalised end-users scout for bargains amidst the current market slide.

“(The transaction price) is a relatively small lump sum for an asset in a downtown location with great visibility, which is perfect for a retail end-user with both retail and office requirements. There have been several companies interested in buying small retail/office assets for self-use/investment in recent quarters,” said Macdonald.

In December 2023, mainland sportswear maker Li Ning agreed to buy Harbour East ↗, a four-year-old office tower in Hong Kong’s North Point area, from local builder Henderson Land for HK$2.2 billion ($283 million) with plans to use the building as its local headquarters.

In August 2023, fintech giant Ant Group acquired Tower B of the KR Centre in Beijing’s Zhongguancun area, with the aim of using the grade-A office building as its innovation and technology headquarters.

That acquisition came three months after Shenzhen-listed home furnishings retailer Easyhome acquired the Ocean We-Life Plaza ↗ shopping centre in Beijing’s Chaoyang district for RMB 359.2 million ($51 million) from mainland developer Sino-Ocean Group.

Capital Re-Allocation

Blackstone’s disposal comes as corporate cost-cutting and economic uncertainty has sapped demand for Shanghai office space with owners offloading commercial property holdings as average rents for grade A properties in central Shanghai slid to RMB 280 per square metre per month in the fourth quarter from a peak of over RMB 320 per square metre per month in 2016, according to Cushman & Wakefield.

The private equity powerhouse has recently exited several investments within its Asia Pacific real estate portfolio, with the fund manager eyeing other markets for capital deployment. In November, Blackstone’s chairman and chief executive Stephen Schwarzman told Bloomberg ↗ that the company is prioritising data centres, warehouses, and student housing assets in Europe.

Some of the company’s recent disposals in Asia Pacific include its remaining stake in India’s Embassy Office Parks REIT ↗, the Arc Place office tower in Seoul ↗, a Sydney office and retail complex ↗, as well as six Japanese warehouses ↗.

James Mackreides
James Mackreides
'Mac' is a short tempered former helicopter pilot , now a writer based in Sofia, Bulgaria. Loves dogs, the outdoors and staying far away from the ocean.

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