MGPA acquires 50% interest in retail mall in Chengdu (CN)

MGPA, the private equity real estate investment advisory company, is pleased to announce the acquisition by MGPA Asia Fund III of a 50% interest in Galleria Chengdu, a high-quality newly-completed retail mall with retail GFA of 53,619 m² in Chengdu, a gateway city of western China. The property was developed by GTC China Real Estate Holdings ('GTC'), who retains the remaining 50% interest in the mall.

Completed in 2010 and with a total site area of approximately 20,896 m², Galleria Chengdu is a four-story (plus two basement levels) stand-alone retail development with a cinema on level 4. The first level of basement has retail shops and car parking and the second solely car parking. This mid-end positioned mall currently has an opening rate of 72% and is anchored by several well renowned retail tenants, including Zara and H&M, which distinguish the property from its surrounding competitors.

The property is located in the New South Area of Chengdu, a fast growing area of the city, and a key retail location populated by destination retail attractions such as the popular hypermarket chain Auchan (a domestic hypermarket) and big box retail operators IKEA and Decathlon. The New South Area is also a designated development area by Chengdu municipal government, which has recently relocated its headquarters there from the main central area of Chengdu.

John Saunders, MGPA's CEO Asia ex-Japan, said: "We are extremely excited to be back into acquisition mode for Asia Fund III and to be investing in China again. Our investment strategy here was to acquire a newly completed retail mall in the emerging district of South Chengdu, leveraging the region's strong growth of retail sales and consumer expenditure as well as the significant supply-demand imbalance of high quality retail space in the surrounding area.

"Much of the recent investor focus has been on eastern China. However, we believe western China merits close focus as the new high speed rail links are expected to have a dramatic impact on this region, and Chengdu especially, over the medium term."

Chengdu has a population of 12 million and the city's GDP growth and retail sales are above the national average, however, its total retail space currently amounts to only 680,000 m², which indicates the population is under-serviced in terms of retail facilities per m² (0.55 m² per capita). The supply of retail space is expected to increase in the next few years, to just above 0.65 m² per capita. Demand from international and domestic retailers is strong, and since 2007, the market rental for prime space has experienced 7-8% annual growth.

Hugh Andrew, MGPA's Head of Asset and Development Management, Asia, said: "With over 15% per annum growth in retail sales over the last five years in Chengdu, strong forecasted retail sales growth over the coming years, the rapid development and population growth of the New South Area, the fundamental prospects for GTC Galleria are well established.

"MGPA aims to further enhance the property value by jointly managing it with GTC, who has an established asset management team on-the-ground. Various value-add strategies will be employed to improve the property's return, such as restructuring the existing capital structure and improving the retail trade mix."

In the project design stage of Galleria, GTC engaged Environmental Market Solutions as a consultant for sustainable design. The building allows natural light into the retail malls via two large skylights that brings light down into the escalator voids.

Source: Citigate Dewe Rogerson

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