Chance to get a stake in style central

The Kean's building at 150-152 Queen St was built in 1928. Photo / Supplied

Two well-known 1920s Auckland City character buildings, situated on two titles on one CBD freehold site and respectively face Queen St and High St, are up for sale.

The back-to-back buildings on a combined site of 858sq m are the Keans building at 150-152 Queen St and 35 High St, which houses the first-floor Rakinos bar and cafe.

The two buildings were last put up for sale in 1991 and are being marketed by Colliers International brokers Tim Lichtenstein and Jason Seymour through deadline private treaty with offers closing on August 27.

"This is a great opportunity for someone to get into the Queen St and High St markets," says Lichtenstein.

"The buildings offer frontage on both streets and over 70 per cent of the income for the combined properties comes from retail tenants."

Built in 1928, the Keans building was for many years a noted local landmark with a prominent neon cowboy sign overlooking Queen St at the junction of Wyndham St.

The three-storey building is on a 449sq m site. A 360sq m karaoke venue occupies the first floor while a similar sized space on the second level is vacant.

Anchor tenant at the ground-floor retail level is Max Fashions occupying 406sq m and paying a net rental of $585,000. Max is one of New Zealand's largest womenswear retailers - a 38-store chain with its own charitable foundation.

"The Keans building is in an ideal part of the city for retailers needing a prime retail spot with maximum exposure," says Lichtenstein.

He says the pavement outside the building is ranked by the Property Institute of New Zealand's 2008 survey as having one of the highest pedestrian counts in the city.

"The property is surrounded by some of the top names in retail, including the ANZ and ASB banks and Bond & Bond. In addition, major office blocks surround the area, filling the street with shoppers before, during and after work."

Seymour says the property at 35 High St occupies an exceptional location at the heart of Auckland's fashion precinct, in the shadow of the Metropolis apartment building and looking out over popular Freyberg Square, which links the area with the shops and restaurants in The Chancery.

Completed in 1928-29 and sitting on a freehold site of 409sq m, the art deco-influenced structure comprises seven levels and a basement. The building has a net lettable area of around 2246sq m over five levels of office space with retail outlets on the ground and first floors, and in the basement.

"This is a boutique character building in a prominent CBD location with a good cash flow in the form of a net passing income of $460,830 per annum," Seymour says.

"It also offers possibilities to add value in the future."

The ground level of 35 High St is subdivided into three retail premises surrounding a period entrance lobby with the anchor tenants being Ricochet Clothing and Rakinos.

Ricochet occupies 73.41sq m generating net rental of $102,700 a year on a four-year tenancy that began in April 2006 with two four-year rights of renewal and rent reviews every two years. The New Zealand-owned Ricochet label is marketed as a high-end, yet affordable, women's fashion brand, with stores in Auckland City, Newmarket, Wellington and Christchurch as well as distributing through 44 boutique shops across Australasia.

On Level 1, Rakinos occupies 204.56sq m, paying $61,532 in gross rent annually. Trading for more than 15 years, the bar and cafe is open six days and seven nights a week. Overlooking Freyberg Place, it has a strong and well-established history, with www.thebarfly.co.nz describing Rakinos as "one of the few places that could be described as having urban funk". The website www.viewauckland.co.nz gives the venue a five-star rating, saying that Sunday night jazz at Rakinos is "the coolest night in town right now. It's an awesome spot. Auckland doesn't look any more metropolitan, anywhere, than it does from this angle."

Rakinos' six-year rental term began in November 2006 and is due to expire in November 2012. The lease has one six-year right of renewal and two one-year rent reviews.

Levels 2-7 comprise office suites of various sizes, with 90 per cent of the area let and providing gross annual office rental of $286,533. Tenants comprise professional companies including architects, fashion designers and marketers.

"There is a strong opportunity to increase the value here when the various leases on staggered terms mature," says Seymour. "It is a strong hands-on, add-value management opportunity but it will be equally appealing to the more passive property investor."

At the top of the building is a rooftop residential apartment and roof terrace, accessed from a stairwell from Level 7. The apartment covers around 20-25 per cent of the rooftop floor area, with the rest used as terrace.

The Queen St and High St properties can be bought separately or together from the vendor, which is restructuring its property portfolio after holding them long-term.

"I can't think when we last saw buildings like this on the open market," says Seymour, who believes the sale will attract "traditional Queen St buyers" and building refurbishment and/or conversion specialists.

"This area has been tightly held over the years and a relatively small group of investors has in the past traded properties in the vicinity largely off-market," he says.

"There have been many approaches to the owner for these properties over the years, though and, given this is the first time they have been made available for 18 years, it presents a great opportunity for someone in a wider market to establish a presence in a prime CBD location."

Seymour says New Zealanders have been buying back into Queen St over the past few years, gradually regaining control of the Auckland's main retail and office strip from overseas investors.

He says the city blocks of Queen St north from Victoria St down to the waterfront comprise about 50 buildings worth more than $2 billion.

In the 1990s, Queen St was mainly in the hands of Australian, European, Japanese, Hong Kong and later Singaporean investors. However, since the turn of the century, New Zealanders have been coming back into the street.

"Investors now include Robt Jones Investments, the Ladstone Group of companies, Paul Doole, Greg Wilkinson and the CP Group, headed by the Pandey family," Seymour says.

"Because these buildings are rarely sold, they remain a top prize for investors, sitting on one of the most visited tourist strips in the country. Inquiries for property in the prime parts of Queen St never seems to subside regardless of the wider economic conditions.

"The owners of buildings just in the city block between Vulcan Lane and Darby St are based in Auckland, Wellington, Taupo, Singapore and Hong Kong, reflecting the national and international appeal of the location."

Lichtenstein says 152 Queen St and 35 High St "offer a powerful combination of location, strong cash-flow and add-value potential, combined with a good spread of tenant risk from a mix of branded retail and boutique tenancies".

Combined, the two properties would create a significant land holding in the heart of the CBD and offer the chance to redevelop or link the two buildings.

"They could also be restored, or refurbished to their former glory."

TAKE ADVANTAGE OF OPTIMISM

Properties in Queen St and High St are well positioned to take advantage of a new market optimism indicated in Colliers' retail report.

Leasing inquiries remain steady for prime retail locations, says Alan McMahon, Colliers' research director.

"Investor interest in the Auckland CBD's golden mile remains firm. Rents vary hugely along the length of Queen St but typically the range is between $1300 per sq/m and $4000 per sq/m.

"Smaller shops with good tenants are still at the top of the investor's shopping list and prime retail yields inthe CBD are at 6 to 7 per cent."

McMahon says there is still robust demand from New Zealand and Australian retail chains for outletsin the best streets and the bestmalls.

"Prime retail rents are stabilising in 2009. Retailers and retail property investors will take comfort from the fact that new supply in the next few years will be minimal, and well-capitalised, experienced retail chains from Australia and New Zealand are still on the lookout for new sites ..."

McMahon says consumer spending was up in April and May, immigration is increasing "and vacancy in both retail and office markets is well below levels that were seen in previous recessions".

Data from the Westpac McDermott Miller Consumer Confidence Index show that consumer confidence moved back into optimistic territory in the June 2009 quarter, with the index reaching its highest level in 18 months.

The rebound is broad based, led by an improvement in perceptions of the short-term economic outlook.