Lumley Centre tipped to fetch record

By Colin Taylor

The Lumley Centre.
The Lumley Centre.

One of Auckland's skyline premium-grade office towers, the Lumley Centre, is being offered for sale via a public expression of interest campaign jointly run by JLL and Knight Frank.

"This is an opportunity to acquire a landmark institutional A-grade asset," says Nick Hargreaves, managing director of JLL, who is marketing the 30,000sq m building with Richard Horne, managing director of Knight Frank NSW Australia, and Layne Harwood, managing director of Knight Frank New Zealand, via an international expressions of interest campaign closing Thursday, June 5.

"The building currently has a 94 per cent occupancy level and a long 7.7-year weighted average lease expiry profile of predominantly blue-chip and service-orientated corporates that include Simpson Grierson, Macquarie Group, Lumley General Insurance and Minter Ellison Rudd Watts," Hargreaves says. "Assets of this nature are extremely scarce, with there being only three other premium towers in Auckland."

The 29-floor Lumley Centre at 88 Shortland St figures prominently on the city's vista and was completed in 2005 by Mansons TCLM Ltd. It was designed by architectural firm Peddle Thorpe Aitken which originated other major city projects such as Zurich House, Westpac Charter House and the Downtown Master Plan.

The 125m-tall tower has 15 floors of office space illuminated by natural light radiating through the building's exterior of energy-efficient double-glazed blue glass exterior that is augmented with low-e (low-emissivity) coating. The distinctive architectural feature contributes to a pleasant office ambience while allowing panoramic views over the harbour and city.

The building's 19,479sq m of office space is complemented by six floors of subterranean parking, a gymnasium with showers and personal storage facilities. The office levels comprise 1300sq m floor plates which are free from obstructions and contain centrally located lifts and a services core.

The two top floors include external decking with panoramic views that are used for client entertainment and the building has dual access from both Shortland St and Fort St.

An independent Initial Evaluation Procedure (IEP) has rated the building of A-plus seismic strength with a rating of 100 per cent of the New Building Standards (NBS).

Hargreaves says the sale of the Lumley Centre represents a rare opportunity. "This stunning property has come on to the market at a time when high-quality assets are being sought internationally and the demand for commercial property is ramping up following the global financial crisis (GFC).

"New Zealand's CBD-located premium and A-grade office towers are back on the radar for both listed and unlisted local and offshore property investors. This increase in interest has led to a recent growth in sale transaction volumes in the Asia Pacific markets, which are now back to pre-GFC levels."

Hargreaves says the outlook for the local office sector has improved lately with increasingly positive economic signals supporting a growing local economy. "Auckland's city infrastructure upgrades are now taking shape and the market is reporting low vacancy rates of 4.1 per cent for premium stock which will drive the need for office space. This is a commodity currently in short supply with a limited pipeline likely to result in significant rental growth."

He says JLL has gone on the record to predict that future time-weighted and premium-grade office rents will exceed their current levels by 30 per cent at the top of the cycle "which has only just recently begun to turn".

Horne says the Lumley Centre will likely appeal to a very broad range of investors including domestic institutions, major private investment groups and offshore privates and institutions. "In view of a lack of comparable premium-grade investment properties on the market and current investor demand, it can be expected this will be a record sale for New Zealand," he predicts.

"There is a strong appetite among the domestic and offshore buyers for assets of this quality. We have seen other prime properties achieving internal rates of return in the region of 9 per cent. We would therefore expect the Lumley Centre to beat this historic pricing profile with its elevated position in the heart of Auckland's Central Business District and offering uninterrupted views over the Hauraki Gulf, Waitemata Harbour and surrounding suburbs."

Horne says Auckland is experiencing strong economic and population growth forecast to continue well into the future.

"Over the long term, the city will see the completion of game-changing infrastructure projects such as the City Rail Link light-rail, unprecedented urban renewal and the implementation of a citywide plan that will enable intensification.

"Due to the scarcity of supply, premium-grade properties seldom transact in the Auckland market. We know this property will generate strong interest from both domestic and offshore buyers due to its size, modern construction and exceptional location - along with its secure lease profile and its ability to satisfy investors as one of the best buildings in New Zealand."

Horne says the tower's position in the CBD is enhanced by a neighbourhood providing high-quality shopping and entertainment within the Downtown precinct, Queen St and High St.

"It is also close to the recently redeveloped waterfront and Britomart precincts that are noted as popular bar and eatery destinations. It is also close to good transport links that include rail, bus and ferry services used daily by numerous office commuters."

JLL's latest Pulse report shows that the Auckland office market continues to be the favoured asset class.

"Auckland's economic outlook remains positive for 2014, filtering its way into business and consumer sentiment and encouraging both investors and occupiers to act in order to take advantage of conditions that encourage growth," the report says.

"The previous six months have seen sales volumes exceed the level of transactions achieved in the first half of 2013.

"Occupier demand continues to gain traction as tenants scramble to secure quality office space before an uplift in rents and a preference for prime space prevails."

Justin Kean, national director of research for JLL, says a continuation of strong investor demand resulting in a continued firming of yields to new low levels is anticipated in line with increased occupier demand.

"Further improvement in the Auckland office market is expected over the short-term, being driven mainly by the demand for prime assets," Kean says. "Secondary stock will lag but it is likely to follow the same trend over the medium term."

He says increasing tenant demand combined with a restricted supply has meant positive net absorption.

"Overall vacancy rates in the CBD declined over the second half of 2013 to reach 10.5 per cent. This decline was led by strong absorption in the CBD core combined with the increased occupier demand for better quality and location.

"The Auckland CBD office pipeline is likely to remain dormant over the next 12 to 24 months with only developments in the CBD fringe and Viaduct Harbour under way.

"As accommodation options continue to remain scarce in the CBD core and frame, we expect an increased level of tenant inquiry in the city fringe over the medium term, resulting in upward movement in rents over the next 12 months," Kean says.

"Limited new-build development in the submarkets, plus longer fixed-term leases, will help new-build rents remain firm for the foreseeable future," he says.

"Occupiers continue to look to secure the highest quality space before an imminent upswing in rents.

"This increasing occupier demand combined with minimal supply is likely to result in strengthening landlord's position relative to tenants. Investment activity will continue to remain strong for the foreseeable future."

- NZ Herald

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