Commercial property a good bet in recovery

Tenders close on September 30 for this Papakura industrial site. Photo / Supplied

Two commercial properties that have just come on to the market are good examples of how the economic crisis has halted the institutional global asset grab and made realistically priced assets available for sale in New Zealand.

The Papakura industrial site and a Glen Eden shop leased to the TAB are expected to create strong interest among investors, owner-occupiers, landbankers and developers, says Dominic Ong, investment sales director for CB Richard Ellis.

The 4000sq m site at 4 Parker St, Papakura has been put up for tender closing on September 30. Ong says it provides excellent redevelopment scope or could be premises for an existing business.

"Industrial and retail properties that were affordable became a rarity in the past five years as investors and institutions chased deals _ pushing up prices and making land and property prices untenable for many private buyers," Ong says.

Leased to a neighbouring demolition company, the Parker St industrial site was originally used as a timber processing yard.

The site is flat open yard with storage space consisting of small sheds and covered work/maintenance areas. It has significant street frontage to Parker St and two access points.

On site is 33sq m of office space, a 408sq m kiln and a canopy of 369sq m.

The property has a sunny aspect and sits in front of Griffins biscuit factory and opposite Te Koiwi reserve.

Ong, who is marketing the property with colleague Tim Boyle, says there are 16 months to run on the lease, which is returning income of $28,000 a year.

"We are expecting interest from a number of different property players as the site offers huge potential," says Ong. "It has a favourable Papakura District Council Industrial 3 zoning and our notional rental assessment for the property is about $90,000 a year.

"It is an outstanding investment opportunity as it will be sold within an affordable price range, giving an owner-occupier time to move their existing business or start a new enterprise, a developer holding income and time to draft new plans and obtain resource consents, or an investor the ability to landbank the property for future use."

Papakura's industrial precinct has grown in the past few years. A number of tenants and business owners have relocated alongside some of the established companies already in the area, such as Independent Liquor and Griffins Foods.

"Unlike other industrial areas, Papakura's main industrial enclave is only minutes from the motorway and has established housing surrounding it, giving a ready supply of workers," says Boyle.

While the property market has been tough for the past year, CB Richard Ellis' research shows the industrial market has approached a semblance of market equilibrium in the past quarter.

Ong says demand has been resilient and leasing has remained positive. "Prime industrial properties have been relatively insulated from rising vacancy."

One of the biggest indicators of an economic recovery is the Business Performance Manufacturing Index. It has risen sharply, mirroring a similar upturn in Australia. Although a score of less than 50 means manufacturing is still contracting, New Zealand is expected to break through 50 in the next few weeks if the upward trend continues. "It will mean a greater volume of goods manufactured, stored, transported and wholesaled, creating demand for industrial premises," says Ong.

In Glen Eden the New Zealand Racing Board has nine years to run on a 10-year lease for modern premises it rents for its TAB operation at 5 Captain Scott Rd.

CBRE sales broker Colin Stewart, who is marketing the property for auction on September 29, says retail investments with national brand tenants are always in big demand and this will be no exception.

The 175sq m building, erected at the beginning of this year, features extensive glazing, a high-quality fitout and sits on a prominent corner position in Glen Eden town. It returns $61,364 net a year and the racing board, the organisation behind New Zealand's racing and betting, signed the lease in October last year. There are two-yearly rent reviews.

The TAB premises form part of the new Glen Eden Town Centre development, a strategic and high-quality strip with tenants that include the National Bank, Kiwibank, New Zealand Post, The Mad Butcher and Noodle Canteen.

"New retail investment properties that have a national tenant and plenty of car parking are seldom offered to the market," says Stewart. "This will be snapped up, particularly as the economy picks up."

CBRE's survey of economic forecasts indicates GDP recovering next year and strengthening in 2011. A number of factors will drive this and in Auckland's case it will be rebounding migration, the stabilisation of consumption and activity during and leading up to the Rugby World Cup.

Comparing trends from June 2002, when the bull market started, to when it ended in mid-2007, the research shows the retail sector, especially the smaller district and community shopping centres, performed best.

CBRE says retail sales growth should turn positive next year.