Full buildings, new tower buoy sector

By ANNE GIBSON

A robust leasing market, strong interest from overseas buyers and the development of a new Auckland office tower indicate a real estate sector in good shape for the year ahead, says an adviser.

Jones Lang LaSalle senior consultant Mark Clavey said the continued strength of the domestic economy had propelled commercial property to new heights, and he saw no signs of any big changes this year.

Unsatisfied investor demand, expansion of a new office precinct round Viaduct Harbour in Auckland and big transactions were hallmarks of last year, he said.

"Strong economic fundamentals such as low unemployment, low inflation, high population growth and stable interest rates are all positive for property markets."

Whether any rises in interest rates this year would blunt enthusiasm for the sector remained to be seen, Clavey said.

One of the highlights for the sector is work on Manson Developments' 29-level Shortland St tower, bringing 18,000sq m of office space, 378 carparks and conference amenities to the area near the Vero Centre.

Simpson Grierson has signed a 12-year lease on the top six floors of 7695sq m.

Some of last year's largest sales included:

* Multiplex's $112.65 million purchase of the 31-level ASB Bank Centre in Albert St, "the most significant Auckland CBD office transaction in more than five years".

* ING Retail's $63.35 million purchase of the DressMart portfolio of properties in Auckland, Wellington and Christchurch. It also bought Dunedin's Meridian retail centre for $50 million.

* Melbourne's McS Property's $47.3 million purchase of the Kelston shopping centre in Auckland and most of Porirua Mega Centre, developed during four years by Land Equity Group through its Megacentre Investments.

Although the education sector occupied 15 per cent of Auckland CBD buildings, the outlook in this area was not as rosy.

Education sector occupancy had fallen 2.4 per cent since June, said Clavey, citing the collapse of Carich Training and the Modern Age Institute of Learning.

Qualifications Authority spokesman Bill Lennox said this week that more English language schools had closed since January 12: four in Auckland and one each in Hamilton, Christchurch and Dunedin.

Clavey said the premium office leasing market was robust.

"Two of the largest leasing deals announced in Auckland last year were the move to the former KPMG building on Princes St by Fonterra and Simpson Grierson's pre-commitment to the new Manson tower."

The Viaduct commercial precinct continued to strengthen with KPMG's move this month into offices on the corner of Viaduct Harbour Ave and Fanshawe St, and Vodafone signing up to occupy a new building on the Fanshawe-Halsey St corner.

Trans Tasman Properties also planned a new office block in Beaumont St.

Market indicators

* Auckland A-grade office rentals are firming at near $400/sq m annually for premium space and up to $450/sq m in some cases.

* Average Auckland CBD rents stripped of any incentives or packages were $175/sq m net annually in 2000 but are up 17 per cent to just over $200/sq m.

* Yields are dropping as evidence of the strengthening market.

* NZ prime commercial property yields are 8 to 10 per cent, compared with 6.5 to 8.5 per cent in Australia.

* An 8.63 per cent yield on the sale of Auckland's ASB Bank Centre was one of the best recorded last year.

* Yields are also falling to under 9 per cent on prime industrial buildings, particularly around Penrose, Wiri and East Tamaki, compared with more than 9 per cent in 2000.

* Auckland's office vacancy rates have been steadily falling since December 2000.

* Vacancy rates in our cities were a crippling 30 per cent 13 years ago but are now down to about 10 per cent. Only 12 per cent of Auckland's CBD office buildings are empty.