The conversion of a luxury boutique hotel in a historical district of Shanghai into a multi-storey flagship retail outlet will be the first project to be tackled by China Xintiandi, a commercial property unit to be spun off by Hong Kong-listed Shui On Land.
Shui On owns two hotels in the popular tourist and entertainment area - the 357-room Langham Xintiandi, and the 53-room 88 Xintiandi.
"We plan to convert the smaller 88 Xintiandi into a big retail shop suitable for an international retailer to locate a flagship store," Shui On chairman Vincent Lo Hong-shui said after the group announced its annual result last month. "We expect that after the conversion our rental income will triple."
Shui On reported core profit plunged 87 per cent last year from 2011 to 201 million yuan (HK$250 million), as revenues 43 per cent to 4.82 billion yuan.
The group will continue to operate its 357-room Langham Xintiandi as a hotel.
Raymond Wei, director of retail for East China at DTZ said many global brands were looking for premium locations in Shanghai to establish flagship stores. "Since Xintiandi is a well-established tourist spot with high passenger traffic, retailers will definitely pursue the location for branding effect," he said.
Global brands were willing to pay a premium for locations in the district as they could use their billboard rights to market themselves to a wide audience.
Shui On did not specify the commencement date of the conversion of 88 Xintiandi, which is located near the city's core business centre on Huaihai Middle Road. It is part of the 52-hectare retail-commercial-residential Taipingqiao redevelopment, and half of the whole urban renewal project has been completed.
Retail rents in the area are currently around 60 to 70 yuan per square metre per day, Wei said.
Shui On Land said earlier it planned to inject its commercial portfolio, valued at up to 68 billion yuan, into its wholly owned subsidiary China Xintiandi, which started operations on March 1. This includes the Xintiandi entertainment district, and other similar projects in Foshan, Chongqing and Wuhan.
The developer previously planned to spin off the US$1.5-billion China Xintiandi in a separate listing last May, but this was postponed as market sentiment weakened. Lo said the earnings' ability of the unit would now be established first to enhance investor interest in a listing.
Shui On Land has deployed about 300 staff to work for China Xintiandi, which will focus on premium retail, office, entertainment and hotel properties in urban areas on the mainland.