What's where with the new Precinct project. Photo / Supplied
How is it that billions of dollars worth of new Auckland offices are rising when some older CBD buildings are more than half empty?
Consultants JLL found the ex-Chorus House on Wyndham St 59 per cent empty, the former Lumley Centre on Shortland St 30 per cent empty and the ANZ Centre on Albert St 22 per cent empty.
Yet Mansons TCLM is building the $600 million-plus 50 Albert commercial campus and is well into its Newmarket block, as well as new Wynyard Quarter offices at 121-127 and 129-135 Beaumont St.
Precinct Properties is also well underway with a three-block project on leasehold land in the Wynyard Quarter, worth a combined $157m for the first two.
A third building on Packenham St hasn't been committed to or priced yet but the value will easily be over $200m with all three buildings.
Yet only a few blocks away, one of Precinct's ex-buildings, the ANZ Tower, is one of the taller and emptier blocks in the city.
But the NZX-listed landlord said some years ago it would sell older buildings and invest in higher-quality ones - a good strategy to avoid vacancies, obviously, because older buildings tend to be less popular with tenants.
Precinct chief executive Scott Pritchard explains why he's forging ahead with new buildings when the older office blocks are so empty.
"What we're seeing is the first and most important finding for business is there's more workforce flexibility, but there's more productivity when people are in the office," Pritchard said.
"To get them there and get productivity gains, they need to offer contemporary premises, designed to meet the demands of the workforce. Some of the older stock may be struggling to meet people's needs whereas new stock on the waterfront with a lot of amenity is attracting a lot of demand."
The Precinct projects, all on leasehold land, are:
• 124 Halsey St, 9700sq m, an eight-level building;
• 117 Pakenham St, 8700sq m, a seven-level block;
• 122 Halsey St, the Flowers Building, 2000sq m, three-level mass timber structure, planned to be shared offices, leased via Precinct's Generator business.
"The 124 Halsey St development comprises three buildings, architecturally distinct but operationally capable of being occupied as one. This design approach will allow businesses to occupy a single floorplate up to 3500sq m or alternatively have a private floorplate of up to 1100sq m," Precinct says of the three-building plans.
None of the Wynyard projects are leased yet. Building work started in September.
"We're in discussions with a number of potential occupiers and feeling confident about leasing the buildings. Demand from occupiers for six-star Green Star is high. They're looking for specifications that are supportive of the environment occupiers want to be in - fully glazed, a lot of natural light, end-of-trip facilities, gymnasiums, bike storage, hospitality all in close proximity," Pritchard said.
At the end of last year, Precinct said it had started developing 124 Halsey St and the Flowers Building, in the third stage of the master-planned Wynyard Quarter innovation precinct.
The first two buildings have a projected cost of around $157m and will generate a yield on cost of around 5.75 per cent once the new space is fully leased, Precinct forecast.
The land is owned by Eke Panuku Development Auckland. Hawkins has been appointed the main contractor for this development, due to be finished in late 2024. A lease of 125 years has been granted to Precinct.
Richard Hilder, Precinct chief financial officer, said using timber in the Flowers Building would cut whole-life carbon emissions by 35 per cent, compared to using concrete and steel.
"This is the focus of the direction of the business, to target zero carbon by 2030. It's a direction we'd like to go, around sustainable construction materials. We're following where the Government is going, of the 2050 emissions reduction plan," Hilder said.
Hybrid buildings combining more timber with steel have the potential to enable emission savings compared to traditional construction.
Pritchard said high-rise buildings of this type were "in their infancy. This has been used more in lower-rise, but this does offer the scope to reduce carbon. The technology is still being developed."
Hilder said Government occupiers wanted a minimum of a five-star rating.
"The same goes for corporate clients as well the shareholders. There's a real drive towards sustainability on this," Hilder said.
Arie Dekker and Vishal Bhula of Jarden have reinstated Precinct coverage following a five-month period on restriction. They have a $1.33 target price and neutral rating on valuation.
"Specifically, we update our forecasts for the 1H22 result; PCT's pending office transaction, awaiting regulatory approvals, and weighted average cost of capital and interest rate movements," the analysts said in a report.
With Precinct's core office portfolio metrics strong and a substantial component of the committed development programme of around $850m largely de-risked from a leasing perspective, "we see the next meaningful catalyst for Precinct being news on its potential involvement in the Downtown Carpark development opportunity it is pursuing", Dekker and Bhula noted.
Downtown Carpark is owned by Auckland Transport but Auckland Council agreed to put it up for sale last year after Covid's effect on budgets. The site is big at around 6400sq m.
"With its assets in the area and track record, we think Precinct is clearly well placed. Should it be successful, the likely scale of that development will likely naturally see significant investor focus on how Precinct intends to approach risk/funding," the analysts wrote.
The Herald has previously reported that Precinct wants that building.
"We have an interest in that site that we've maintained for a long time," Pritchard said.
The store is one of the most profitable and popular in Foodstuffs' North Island co-op.