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Office Space Giant SOHO China to Sell Properties in Shanghai

| Aug 21, 2016 10:25 PM EDT

Pan Shiyi (L) founded SOHO China with his wife, company CEO Zhang Xin (R), in 1995.

SOHO China Ltd, China's biggest provider of shared office spaces, will be selling three properties in Shanghai, the chairman of the Hong Kong-listed company announced on Wednesday.

After an analysis of the company's 1.7 million sqm commercial property space, of which 1.2 million sqm is leasable, SOHO China has decided to offload another three property projects in Shanghai, company chairman Pan Shiyi said in a statement.

In late July, Pan put SOHO Century Plaza in Shanghai on sale for 3.3 billion yuan ($498 million). Covering a total of 43,000 sqm of commercial space, with the price per square at 76,700 yuan, the property accounts for 3.7 percent of the company's total leasable space.

The decision to shift its portfolio to selling properties located outside core areas is in line with SOHO's strategy of holding office space in prime locations in Beijing and Shanghai, he added.

SOHO China has leased up to 70 percent of 13,600 slots in its 16 SOHO 3Q shared office space sites in Beijing and Shanghai, according to a report the China Daily newspaper.

"There are more than 3,000 share-office spaces in Beijing and Shanghai, with the majority being extremely small," Pan said, adding that the company aims to expand their business model to second-tier cities through third-party partnerships.

SOHO China President Yan Yan said the company currently does not own any properties outside Beijing and Shanghai and has no plans to invest in office spaces there in the short term.

"We will launch co-working space under the 3Q brand in second tier cities through cooperating with office or commercial properties as a third party," she added.

Yan noted the cities of Shenzhen, Hangzhou, Chengdu, Xian, and Wuhan as potential new areas of operation.

SOHO has gradually transitioned from a "build-and-sell" strategy to operating self-owned projects. In 2015, the company posted a net profit of 538 million yuan, a year-on-year drop of 86.8 percent. But in the first half of 2016, buoyed by the appreciating value of its own properties and increasing rental prices, it reported a net profit of approximately 600 million yuan, surging 344 percent from a year earlier.

"SOHO China has made a decision of shifting its business mode when other major developers still stick to traditional ways of making profit through property sales, and it is now mature enough to expand its business management to second-tier cities," said Chen Sheng, president of the China Real Estate Data Academy.

"During the transformation from a property seller to a landlord, we encountered shrinking revenue as the rents generated were not comparable to the considerable sales revenue from properties, but the good news is we have made the transition, and the difficulties have bottomed out," said SOHO China CEO Zhang Xin.

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