Key Points:

The Kiwi Income Property Trust is to embark on a $200 million office expansion at its Mt Wellington shopping centre.

The listed landlord announced yesterday that in the next few months it would begin construction of office blocks around the fringes of its Sylvia Park shopping centre in Auckland. This would generate millions of dollars in rent.

Today, Kiwi Income opens the fourth and final stage of the retail centre, marking a milestone in the venture which has been planned for a decade and met with strident investor opposition before it began.

Now it has finished the 200-shop mega-retailing centre which covers 6.5ha indoors and has a value of $450 million, Kiwi Income is moving into building multi-level office buildings.

The developer, which owns property worth $1.9 billion including the Vero Centre in Auckland CBD, is well down the track towards starting four large office blocks on the site's boundaries.

Angus McNaughton, chief executive of Kiwi Income, said initial work on the first five-level $30 million office block could start this year and the building work might begin next year.

This month, Auckland City granted the Sylvia Park Business Centre non-notified consent to build two large five-level office blocks on the Mt Wellington Highway.

The blocks will rise in the retail centre's carpark on either side of the park's second entrance near the Caltex service station.

The first block will be 7500sq m but the second will be much larger at around 11,000sq m.

Kiwi Income units closed down 3c at $1.61 yesterday.

Kiwi always intended to develop large office blocks around the perimeter of its 24ha site but this expansion depended on the retail centre's success.

McNaughton said the shopping centre's early success had generated tenant interest and residential values in the area had risen 30 per cent, according to reports he had received from real estate agents.

Landlords and investors had bought houses surrounding Sylvia Park, gambling on the area being in high demand once the company completed the construction, the Property Investors Federation said.

McNaughton said the shopping centre, which has 2500 staff, was drawing about 12,000 people at any one point in peak weekend trading hours, so offices were now feasible.

"The buildings are in the design stage now," he said.

"Office users were waiting to see how the whole thing evolved but there's no other place in New Zealand with this level of amenities.

"The location and amenities here, together with the unrivalled public transport options including Sylvia Park's own dedicated train station that opens on Monday, will make office accommodation attractive for many high-quality tenants and their staff."

Only one shop was left to lease in the centre and that was under negotiation, he said.

The park got off to a slow start after it opened last winter, earning the nickname "Spooky Park" from retailers who complained it was deadly quiet from Mondays to Wednesdays.

But McNaughton said yesterday stage four with an extra 7000sq m would complete the centre, take it from 58,000sq m to 65,000sq m and cement its place in the retail market.

"This means 40 more tenants paying rent," he said.

A creche, Plunket rooms, Citizens Advice Bureau, Weight Watchers, East Tamaki Health Centre Smile Dental and Paper Plus with NZ Post are ready for the opening.

EziBuy, Noel Leeming and Baby Factory opened large-format stores in stage four.

McNaughton said large-format retailers were paying around $600 per sq m, locked into six-year leases and banned from re-assigning tenancies to other parties for at least two years.

Smaller-format stores in busy high-pedestrian areas at the centre were paying nearer $2000 per sq m, he said.

Kiwi's resource consent required it to build the new railway station and McNaughton said the trust had spent $5 million building it.

During construction, workers struck more rock than was expected, he said, but Kiwi had provided for this.

"We had contingencies," he said of the extra money needed to build the station behind the Hoyts movie theatres.

Colliers International's latest leasing report said Auckland office space was scarce.

The market was dominated by strong demand but little supply.

A strong economy had pushed vacancies to some of their lowest historical levels, hovering around just 2 per cent for premium A-grade offices.

Landlords could demand up to $650 per square metre annually for prime CBD offices, Colliers found.


Auckland helpdesk

Getting the runaround? If you live in the Auckland region and have a gripe about a local issue, we'd like to help. Starting soon, our weekly helpdesk column will take your questions and problems and find the answers.

Email the Herald Newsdesk