A nearly vacant 19-level Queen St commercial office building is ideal for conversion to a hotel or serviced apartment to take advantage of the current tourism boom.
The striking blue-glazed property at 396 Queen St, on the corner of Mayoral Drive and with a third frontage to Airedale St, is being marketed by Dean Humphries, national director of hotels for Colliers International, and is being sold by deadline private treaty closing at 4pm on Thursday, March 20.
Humphries says initial feasibility studies indicate the property could be converted to provide an incoming investor with an excellent return.
"Many office buildings don't meet the criteria required for a hotel conversion but this one ticks all the boxes," he says.
Humphries says 2013 was a phenomenal year for the tourism and accommodation sector in New Zealand's main cities, and the trend is set to continue on the back of improving business confidence and strengthening economic growth.
"The days of affordable inner-city hotel room rates are fast coming to an end," he says. "Occupancy rates for three to five-star hotels for the year ending December 2013 are close to 80 per cent, an all-time high.
"We are also seeing healthy increases in room rate with Auckland having witnessed an increase of almost 8 per cent in revenue per available room in 2013. This caught many of us by surprise, with our forecasts predicting a more modest growth trend due to our high dollar and a slow global economic recovery.
"However, we have seen inbound international visitor arrival numbers to New Zealand increase 5 per cent in 2013, with almost 130,000 more visitors than the previous year. Chinese travellers increased 22 per cent to 234,500 visitors this year.
"On the flip side, we have actually seen a reduction in room supply in the Auckland market with our analysis revealing a drop by 500 rooms to an inventory of 9500 due to a number of serviced apartments being taken out of the short-term letting pool and converted back into owner-occupier or long-stay use."
All this good news makes it a fitting time to convert Auckland's under-utilised office buildings to meet the needs of the fast-growing tourism sector. "With the current boom in tourism in Auckland and a shortage of new supply coming on-stream, there is increased investor interest in building conversions to hotels or serviced apartments.
"We are now seeing a significant increase in room rates, overall profitability and values of hotels right across the city, which is assisting with the economic feasibility of these developments."
Humphries has been personally involved in a number of such projects over the past two years including the conversion of the 11-level Camelot Apartments in Brisbane to a 4.5-star apartment hotel owned by Punthill Apartment Hotels, and the purchase in August last year of a B-grade 18-storey office tower at 80 Albert St in the Brisbane CBD by Singapore-based Fraser Hospitality Hotels for conversion to a 4.5-star apartment hotel complex.
More recently, Humphries negotiated the sale of a large tranche of the 113-unit, seven-level Quba apartments at 2 Tapora St in the Auckland CBD on the corner of Mahuhu Cres, near the Vector Arena. This building is also being redeveloped to a 130-150 room, upscale hotel apartment complex, its operator yet to be announced.
In other major Auckland hotel conversions, the former Reserve Bank building at 67 Customs St is set to open next year as a 133-room Sofitel So hotel; the former Swanson Towers is earmarked to become a mid-scale 104-room hotel; and a further office-to-hotel conversion is under way on Queen St by the VR Group which, when complete, will comprise 90 rooms.
In Wellington, an estimated $35 million is being spent adding several floors to the top of the old Enza head office in Bolton St, converting it into a 130-room, five-star Sofitel Hotel.
Humphries says a feature of the 396 Queen St property is its largely unobstructed views from most floors, including panoramic views from the middle and upper levels over Auckland's Waitemata Harbour and the central business district.
"The floor plates and central service core enable an ideal conversion to perimeter hotel rooms of between 22sq m to 35sq m, all of which receive strong natural light via full floor-to-ceiling perimeter glazing."
Humphries says the building also has space for a restaurant and conferencing venue, together with typical front- and back-of-house service facilities.
"With three road frontages, the property offers multiple entry points for various purposes. Its main entrance on Queen St allows for an attractive reception and lobby entrance opening to Auckland's busiest tourist and retail thoroughfare, with a vehicle entrance and drop-off zone on Mayoral Drive and servicing and loading via Airedale St."
Humphries predicts the Auckland tourism and accommodation sector is in for a bonanza over the next few years with a low supply pipeline, increases in visitor numbers and the city hosting a number of key events including the International Cricket Council's World Cup Cricket and the Fifa U-20 football tournament.
"All of these factors trend towards the need for more short-stay accommodation over the short to medium term," he says. "We are forecasting that Auckland will have a shortage of hotel supply as early as 12 months from now. This particular building at 396 Queen St can be converted immediately, allowing for up to 250 new rooms to be completed within 15 to 18 months, approximately half the time-frame required for a new hotel build.
"With its location on Queen St, it is ideal for a three to four-star mid-market hotel - the sort that is typical of many large metropolitan cities but is in very short supply in Auckland," Humphries says.
Guests would be close to the Aotea Entertainment Precinct and SkyCity as well as the hundreds of shops, restaurants and cafes lining Queen St. They would also be a short distance from the waterfront and other key tourist attractions.
Humphries says the property could also be converted to a circa 400-bed budget-student accommodation facility. "This use is particularly attractive due to the site's closeness to the University of Auckland and AUT University.
"The building can also be retrofitted back as office accommodation or converted to a mixed-use development incorporating a combination of the above uses," he says.