One of Asia's most historic hotel groups is now offering residential real estate for the first time.
The Peninsula Residences in Shanghai has been put on the market by the operators of the Peninsula, Hong Kong's grand dame hotel.
Hongkong and Shanghai Hotels Ltd., which was formed in 1866, is selling 39 apartments in Shanghai's most historic district, the Bund, along the Huangpu River, near to the Peninsula Hotel. Properties in Qatar for sale
The news comes at a difficult moment for the Shanghai hotel business, which saw an 8% drop in average daily room rates last year before stabilizing in 2013. According to Knight Frank data, the Grand Kempinski, Ritz-Carlton, and Four Seasons all recently opened hotels in the city, bringing the total number of five-star rooms in the city to 25,619, second only to Beijing.
The city is suffering from a hangover from the 2010 Shanghai World Expo, which resulted in the addition of 17 five-star hotels in 2011 and 2012. Last year, 3.6 million visitors arrived, down 10% from the previous year.
Despite the challenging circumstances, the Peninsula apartments are priced at the top of Shanghai's market.
The Peninsula Residences, a joint venture with mainland developer SPG Land Holdings, would cost at least 15,800 yuan (US$2,580) per square foot and start at 34 million yuan (US$5.6 million). They have one to four bedrooms and range in size from 2,150 to 3,550 square feet.
Property prices in China have been rising since April, after a rocky start to the year, with Shanghai up 15% in August compared to last year. Since assuming office in March, Chinese officials have toned down their rhetoric on curbing price increases, with Xi Jinping enacting no new housing measures and instead focused on structural transformation.
Branded vacation properties abound throughout Asia, including W Hotels, St. Regis, Banyan Tree, and Shangri-La. Given that such chains hardly ever own the hotels they manage now, one issue that constantly hangs over such assets is how long the network is dedicated to managing the private real estate. Instead, they work under long-term management contracts and have the option to drop their brand name at the end of such contracts.
The Peninsula Residences, on the other hand, are city-center flats managed by a hotelier with one of Asia's longest track records. It holds a 50 percent ownership in its Shanghai property and owns four of its nine hotels entirely.
The Peninsula in Hong Kong is famous for its Rolls-Royce sedan fleet, which picks up guests staying in one of the hotel's suites. The Iranian-Jewish Kadoorie family established the hotel in 1928 as the "finest hotel east of Suez." The Kadoories, who still own the hotel, also own one of Hong Kong's two power firms, which has been extending its operations in mainland China.
Though reclaimed land has taken away its seaside location in Kowloon, it still enjoys pride of place in Tsim Sha Tsui, a short distance from Victoria Harbor and the Star Ferry.
The Peninsula's decision to launch its first private real estate offering in mainland China is revealing, since the company is clearly targeting the country's rising legion of millionaires and billionaires, as well as high-powered executives dispatched to Shanghai by global corporations.
The domestic market is expected to have the highest demand. Multinationals are hesitant to hire as China's economy weakens and the global recovery remains shaky. The vacancy rate for serviced apartments increased by two percentage points in the second quarter, to 13.4 percent, due to new units entering the market.
Due to sluggish sales, most developers maintained their sales prices in mid-2013. In the second quarter, serviced apartment rents declined by 0.6 percent.
The Peninsula Shanghai is a modern hotel, having opened in 2009, although it sits at the end of a row of buildings built in the 1920s and 1930s on the historic Shanghai international settlement, where foreign enterprises were allowed to set up business and deal with Chinese merchants.
The Peace Hotel, the Customs House, and the Banque de L'Indochine are all close neighbors to the hotel and new flats.
The furnished apartments are designed by French designer Pierre Yves-Rochon in an art deco style, with white Carrara marble in the bathrooms and abundance of mahogany and ebony in the tables and fixtures, offset by the Peninsula's signature cream color in the carpets and sofas.
For the time being, 19 of the units are for sale, with the others being rented out by the parent firm for 150,000 to 300,000 yuan (US$24,500 to US$49,000) a month.
Peninsula Hotels, which operates hotels in New York, Chicago, Los Angeles, Tokyo, Beijing, and Bangkok, has announced plans to expand into residential property in other cities, including Beijing and the United States.