Competition grows for quality property on Auckland fringe

By COLIN TAYLOR

Colliers International has set up a specialist city "fringe team" in response to the rapid expansion and demand for commercial property in Auckland suburban areas.

Investors are increasingly looking to the city fringe for commercial property investments, says fringe team leader Luke Richardson.

As investment property in the CBD tightens, competition is growing for quality, well-leased stock in areas such as Newmarket, Parnell, Newton, Kingsland, Grey Lynn and Ponsonby.

"The demand is strong right across the board for commercial and residential investments and development sites," says Richardson.

"Quality properties attract dozens of buyers, achieve good prices, and demand is so strong we could often sell them 10 times over."

Richardson says the fringe of the CBD is an area of constant change and evolution. Typically, one sector, such as education, will either be expanding or contracting, new roads are under construction or being upgraded; and new residential, commercial, industrial and retail areas are being developed or expanded.

Properties in the fringe areas change their use and owners more frequently than other parts of the city, opening up opportunities for investors, developers and owner/occupiers.

The Colliers fringe team recently sold a TAB betting shop in Ponsonby for $720,000 at a yield of 4.99 per cent. Richardson says the price achieved was symptomatic of small fringe investments chased by a large number of investors disenchanted with the equities market, and poor returns from cash, or money in the bank.

Two weeks ago, two properties in Morningside were snapped up by investors for about $1.8 million. An office building at Morningside Drive sold to a private investor for $1 million, a yield of 7.52 per cent, and a 566sq m building at Collins St sold for $740,000, which was $100,000 above the expected price. Richardson says residential conversions and developments are largely underpinning values in many fringe areas.

The continual change in the fringe market's focus has freed up buildings for alternative uses. "For owners of low-grade office space, the surge in the apartment market has been a saviour," says Richardson.

"Many developers want office buildings suitable for apartment conversion and others are buying vacant properties for demolition, and redevelopment as purpose-built apartments.

While the apartment market in the fringe city has been buoyant, Richardson says there is no shortage of new office developments under construction, such as the speculative 20,000sq m Trinity Park on the corner of Kingdon St and Khyber Pass Rd.

Further along the road, on a 3080sq m site at the corner of Kingdon St and Carlton Gore Rd, a four-storey office and retail complex is being constructed by Hossain Reyhani and is scheduled for completion this year. It has been three-quarters pre-leased, with almost half the space taken by project engineers Connell Mott MacDonald.

Older industrial buildings are also being redeveloped, often into office space with modern, minimalist finishes. And some of the older warehouses are becoming a preferred option for retailers, who can consolidate their business into one building with a shop on the street frontage.

One well-known retailer, Zac Shoes, chose an older warehouse over traditional strip or mall retailing. The company benefited from lower costs, having the entire operation in one building, ample parking and good access for customers.

Richardson says cost savings can also be made by businesses moving from the CBD to the fringe. Davenports City Law moved from Albert St to a refurbished residential building on College Hill for lower occupancy costs, easy access to parking for clients and staff, stand-alone identity and profile, while still being close to the CBD.

"Many CBD tenants are looking hard at their costs as rents rise. If they are in a high-rise they are just one of many tenants paying high service charges for lifts, common areas, cleaning and carparks. For quite a few, a move to the city fringe makes sense."

As the city fringe undergoes a metamorphosis from a light industrial area into a mix of commercial and residential uses, the surrounding infrastructure is changing - cafes and restaurants are becoming an indispensable part of work and home life.

The fringe, along with all property sectors, is in one of the most active periods for commercial property transactions in more than a decade, according to Infometrics. Sales volumes for commercial properties have set new 13-year highs.

In the fringe leasing market, tenants in the marketing/media, communications and IT industries, in particular, are fuelling demand for office space. Marketing/media companies occupy nearly 45,000sq m, communications just over 30,000sq m and IT companies just under 30,000sq m.

In the past couple of years, Newmarket has led office growth in the city fringe and the suburb's vacancy rates are now at a five-year low, with several new office developments under construction.

Richardson says College Hill's vacancy rates are also falling through apartment conversions with several thousand square metres of office space transformed into apartments. Grafton has the highest vacancy rate, which has not been helped by continuing major roadworks in the area.

Fringe office space has also been a magnet for the education market. But recently a number of factors have contributed to a reduction in space occupied by this sector. Typically, small language schools in buildings designed as offices have been the ones struggling, but the larger well-established schools, particularly tertiary institutions, continue to go from strength to strength.

Richardson says there are plenty of opportunities in the fringe market for developers, investors and owner/occupiers. "However, it needs seasoned brokers with knowledge of the market, the players, properties and an understanding of how to unlock the opportunities."