City properties with scope for expansion on the menu

China Yum Char Restaurant & Bar returns $250,000 a year net. Photo / Supplied

China Yum Char Restaurant & Bar's premises at 2 Beach Rd and a two-storey building at 224 Hobson St leased to Hobson Big Mart and a dental technician are being auctioned on September 29 through CB Richard Ellis.

Investment sales director Dominic Ong says both properties are key investment opportunities at a time when consumer spending in the cities, which dropped 9 per cent per capita from its peak, is starting to grow again.

"The property at 224 Hobson St is a 'standout' opportunity to acquire a high-profile 864sq m freehold site in the city that has holding income and development options," says Ong, who is selling the property with colleague Colin Stewart.

Under the Auckland City Council's zoning the property falls within the Strategic Management Area and can be developed up to 50m in height with a maximum floor area ratio of 6:1 if resource consent is granted.

"There is also potential to amalgamate the neighbouring site at 234 Hobson St to create a 1679sq m block giving additional development scope," says Stewart.

"High-rise apartment blocks mixed with street-level retail and showroom space surrounds the site and it could be developed into similar premises in the future or be left as it is.

"This is a good chance to obtain a CBD property that has secure, good long-term holding income and which fits in to the 'right development opportunity' even though that sector of the market is flat. It will recover in the next couple of years and there is a demolition clause in the lease."

While a new owner mulls over plans for the property it will be generating holding income of $194,680 a year coming from the two tenants.

Hobson Big Mart set up business on the 430sq m ground floor last year and has a 12-year lease with three rights of renewal of three years each, ending in 2029. Dental technician Designer Smiles has been on the 465sq m top floor of the property since it was built in 1985 and has 15 months to run on its lease. The two levels are on separate strata titles but are being sold together.

On-site there are 19 carparks - seven covered and 12 uncovered. More than 30,000 cars a day pass the site on their way to the motorway about 100m south of the property.

Heading back to the waterfront and next to Britomart is China Yum Char Restaurant & Bar, a popular Chinese restaurant in the CBD returning $250,000 a year net.

Opened by restaurateur Jacky Orr four years ago under the Scene 1 apartment complex on Beach Rd, China Yum Char has a long-term lease with more than 11 years to run.

It has two further rights of renewal of six years each, ending in 2032.

Forming part of the ground floor of the apartment block, the property is leasehold and sits on land owned by Ngati Whatua O Orakei Trust Board, which granted a 140-year terminating lease.

Ong says the 575sq m property has a high-stud quality fitout throughout the 425sq m indoor restaurant that features a main dining hall, separate private dining rooms and a 20sq m storage area. Outdoors there is another 130sq m dining area and 11 carparks.

"Rental growth is fixed for China Yum Char and reviewed every three years, providing surety of cashflow for a new owner."

Straddling the apartment complex and Britomart precinct, the property is leased to China Yum Char at $450 per sq m which is a reasonable rate, says Ong.

"Directly opposite the restaurant a new 28,000sq m office building is under construction for more than 2000 Westpac and Ernst & Young staff and the property is surrounded by big apartment blocks."

Ong and Stewart are upbeat about the retail property investment market. "The latest research shows consumer spending will be back into modest growth for the rest of the year. But, in contrast to the debt-fuelled spending binge of the past decade, it will be more cautious," says Ong.

Retail sales were stronger than economists expected in the June quarter. Statistics New Zealand figures show in dollar terms retail spending had its first rise, by 1.1 per cent, for more than a year - equating to $174 million in extra sales during the period.

While economists say the latest retail figures show soft trading patterns, improvements in consumer confidence surveys and a rising housing sector point to further growth in the retail sector. Some believe New Zealand has seen the last of the recession.

Westpac chief economist Brendan O'Donovan says in the bank's quarterly economic overview that Auckland is leading the recovery.

He says lower interest rates are doing the trick. "Auckland is the most leveraged bit of the economy. It was hit most by high interest rates and gets the most benefit from low rates."

O'Donovan says the recovery is being led by the housing market where turnover has lifted and prices have stabilised, boosting consumer confidence and spending.