Two weeks ago Sun Hung Kai won an auction for a development site in Shanghai with a bid of US $3.5 billion. This was the second largest amount ever paid for a single development site in China.
Over the last several years we have been retained to conduct market studies on this particular site by several different developers from around the world, although never by SHK. The site is located in Xujiahui, a key retail precinct in the Southwest part of the CBD. It is perhaps the last large scale site for mixed use development in a prime location, hence the intense interest.
Although in the CBD, Xujiahui has never been considered an important office location, but from a retail perspective there are few places that rival it in Shanghai. From our perspective, the key challenge for this site – given that it has both office and retail components – was to not get bogged down in trying to compete with the Premium Grade A offices in the core CBD, but focus on maximising the retail potential.
In the end, it makes perfect sense that SHK was able to make the highest bid. They have a strong asset management team on the ground and have executed extremely well in Shanghai so far. ifc in Pudong is one of the best mixed-use projects in all of China and ICC in Puxi is nearing completion, with the shopping mall having just opened. If anyone was going to be able to bet big on hitting a home run with a large retail project in Xujiahui, it is SHK, plus it fits their profile for this kind of development with a large catchment area and multiple metro lines converging underneath.
Whether SHK choose eventually to sell the office portion of the project to owner occupiers, we won’t know for a long time, but this investment can be taken as a big vote of confidence in the future of the retail market in Shanghai. They clearly believe that they can develop another large successful scheme and not dilute the catchment area of their existing projects.
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