Swire Properties CEO Sees Strong Rent Growth in China

Swire Properties Ltd., the Hong Kong landlord whose tenants include Time Warner Inc., said rental income from China will be “very strong” in the next few years as it opens more properties and leasing prices rise.

Gross rental income from mainland China almost tripled in the first half of the year, a trend that will continue, Chief Executive Officer Martin Cubbon said in an interview with Bloomberg Television in Beijing yesterday. The company is also able to charge higher rents as some tenants have opted to stay longer after the landlord offered them relatively competitive leasing terms as properties opened, Cubbon said.

“For a number of years we’ll see very strong growth,” Cubbon said without giving estimates. “We’ve faced intense competition as anyone who does business in China, and we now see, if you like, light at the end of the tunnel.”

Improved performance at retail complex Sanlitun Village in Beijing and a first-time contribution from Taikoo Hui in the southern city of Guangzhou helped boost the company’s underlying profit by 3.8 percent, it said last month. While Swire Properties has committed about 12 billion yuan ($1.9 billion) with partners for two developments in Chengdu and Shanghai, total investment will exceed that in the next couple of years as the company finds new projects, Cubbon said.

Office rents in Beijing, Shanghai and Chengdu, where most of Swire Properties’ five major commercial mixed-use projects on the mainland are, climbed as much as 3 percent in August amid a supply shortage, according to a Sept. 14 report from Centaline Group.

China Contributions

Including the Sanlitun Village, opened in 2008, the 99-room luxury hotel Opposite House in the capital’s Chaoyang district and Taikoo Hui, projects in mainland China will account for about a third of Swire Properties’ total assets, the company has said. China investments contributed about 15 percent of gross rental income in the first half, according to Bloomberg calculations based on company figures.

“It appears to be a wise strategy to focus on the first-tier cities for commercial property in this environment,” Ji Feng, a Shanghai-based analyst at Centaline Group, parent of China’s biggest real estate brokerage, said by phone. “There’s always demand there even when the economy is doing poorly, while there’s typically oversupply in second- and third-tier cities.”

The Hong Kong developer is scheduled to open a 6.4 billion yuan retail and office project in the western Chinese city of Chengdu in early 2014, a joint development with Sino-Ocean Land Holdings Ltd., and another retail, office and hotel complex in Shanghai in 2016.

The shopping mall in the 1.9 million-square-feet Indigo in northeast Beijing, opened in March, was 83 percent leased as of June 30 while the office space was 73 percent occupied, the company said.

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