Shanghai real estate

(articles quoted from www.chinaknowledge.com)
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Shanghai ramps up construction on huge Pudong project

Mar. 5, 2009 (China Knowledge) - Shanghai's largest real estate project, which comprises two pieces of land labeled Z2-4 and Z2-3, went into full construction in Lujiazui, Pudong recently, sources reported.

Shanghai Lujiazui Finance & Trade Zone has started building on Z2-4 land. Hutchison Whampoa Ltd started building on Z2-3 at the end of last year.

The huge project is expected to cost RMB 12 billion in total and be completed in 2012. The project's potential floor area and land area are 380,000 square meters and 89,200 square meters, respectively.

The commercial project may still suffer the influence of the sluggish property market. Office buildings with potential floor area of 754,000 square meters will be completed in Shanghai this year, including 435,000 square meters in Pudong, according to Savills China, a leading global real estate service provider.

In the fourth quarter of last year, the average rent in Grade A office buildings in Shanghai sharply decreased 21.6% from the previous quarter.
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So let me get this straight:

1. There is currently very significant overcapacity for office space in Shanghai.

2. In late 2008, it was reported that the vacancy rate for Grade A office space was 11 % (vacancy rates for lower grade office space were much higher)

3. Rents decreased by 22 % in Q4 compared to the previous quarter, indicating that the situation worsened significantly during Q4

3. 754,000 m2 additional office space will be completed this year

4. An additional 470,000 m2 have just started construction (I assume they are not included in the 754,000 m2, as they won't be completed before 2010)

I can only say: Good luck to anybody who's invested in Shanghai commercial real-estate...


And here's another goodie:
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Hilton to open luxury hotel in Shanghai

Mar. 5, 2009 (China Knowledge) - US-based Hilton Hotels Corp yesterday announced plans to open a luxury hotel on the Bund Shanghai, one of the most famous tourist destinations in the city, sources reported.

The hotel giant has obtained management contracts from Shanghai New Union Building Co Ltd to convert existing boutiques in two historic buildings into a 266-room hotel under its luxury Waldorf Astoria brand.

Martin Rinck, president for Hilton Hotels Asia Pacific operations, said the hotel group is excited to open its first Waldorf Astoria hotel in Asia in such a perfect location and holds a positive view of the long-term business earnings in China.
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Let's see:

1. 4/5-star hotels in Shanghai have been running at 20-30 % of capacity over the last few months

2. Room rates have tumbled, as customers have chosen 2/3-star establishments instead

3. But hey, let's be anticyclical: Let's open a new 266-room 5-star hotel on the Bund!

(As far as I understand, Hilton and the other international chains assume very little risk when they open new hotels in China. The investment is done by a local Chinese partner, in this case Shanghai New Union Building Co Ltd, and Hilton manages the properties for a fee. Fee income is lower if there are not enough clients, but they don't have to come up with the capital, and therefore don't need to worry about earning a decent return on scarce capital.)