Queen St block offers cash flow plus potential

The nine-storey building generates an annual income of $1.4 million. Photo / Supplied

Cash flow and redevelopment potential are the attributes of a Queen St office block that has come on the market for the first time in 13 years through CB Richard Ellis.

The nine-storey building at 350 Queen St is being sold by its Korean owner, Prince Corporation, so it can buy a bigger CBD property.

Sitting on a 1178sq m freehold site, the 5600sq m retail/office block has frontages to Queen St, Rutland St and Lorne St - an Auckland CBD rarity.

CBRE investment sales manager Dominic Ong says the property is located in Strategic Management Area One of the Auckland City Council's central city plan. "Under the basic floor-area ratio of 6:1, the site can potentially carry up to 7000sq m of space, while at the maximum 10:1 floor ratio it could possibly be redeveloped to 11,000sq m, depending on development controls and bonus rights.

"The redevelopment potential, combined with income of about$1.4 million a year split betweenoffice and retail tenancies, makethis property an attractive propo-sition for serious investors."

The property is being sold by international tender closing on November 19, and Ong expects keen interest from investors in New Zealand and Asia.

Built in 1983 by Mainzeal Construction to a design by Walker Co-Partnership, 350 Queen St has 4237sq m of office space, 660sq m of retail and parking for 11 cars, a total net lettable area of 4897sq m.

The property's ground floor retail is on a Queen St corner that has some of the highest pedestrian traffic counts in the CBD. "Vodafone and APN have signage contracts in place, reflecting the appeal of this Queen St corner location," says Ong.

A diverse mix of tenants has been drawn to the property, includingFlight Centre, ANZ and AUT, which has three floors in the building.

"A growing education sector gives AUT and other institutes the potential to take extra space in the building as it becomes available," Ong notes.

The general vicinity is home to much of the city's entertainment, educational and civic centres. In the immediate area are the Town Hall, Aotea Square, Auckland City Library, Auckland Art Gallery, SkyCity Metro and Civic Theatre.

The property was originally Aotea House and then DFC House before being purchased by Prince Corporation from ANZ Pensions in 1966 for $6.2 million.

"Properties along Queen St are seldom for sale, and this is a rare opportunity to secure a standalone corner site in a strategic location," Ong says.

"If this property was in a similar location in Singapore or Hong Kong it would be pulled down and the site redeveloped to its maximum potential."

Ong says the building's healthy cash flow can be used by a new owner to spend time drawing up redevelopment plans and obtaining resource consents. "The property's location gives investors huge redevelopment scope. Tertiary education, language schools, apartments, short-term accommodation, retail and office development are some of the possibilities for the site."

He says there has already been strong overseas interest despite the property market suffering in the recession. "Private investors globally are taking advantage of low interest rates and the repricing of many prime assets."

According to the latest economic research, Auckland is leading the country's recovery from recession. "Lower interest rates are doing the trick," says Westpac chief economist Brendan O'Donovan.

In the commercial office market, CBRE's research shows capital values declining 10 per cent this year, 5 per cent next year and positive capital returns in 2012.

"The recession has been helpful for private investors wanting to buy substantial commercial property that has been too highly priced or unavailable in the past four to five years.

"But investors are cautious, reducing risk by only considering properties with good fundamentals."

Ong says there is no doubt the market has been tough in the past year, but he says factors helping the office market are increasing business confidence, a rise in student visas for the first time in five years and KiwiSaver.

The latest National Bank Business Outlook survey shows 34 per cent of respondents expect an improvement in business conditions in the year ahead, up 16 per cent from a month ago.

Companies' own activity expectations also improved, with 26 per cent predicting better times ahead for their own business, which is close to a five-year high.

"There is no doubt a better feel-good factor is developing," says Ong. "Higher business confidence will reduce the rental downside, and strong population growth will continue to underpin the performance of the Auckland office market in the long term."

CBRE's research shows visas for foreign students peaked at 120,000 in 2003-04 after a steep rise in numbers, then declined for the next four years. The latest figures show a rise back up to 100,000 in the June 2009 year.

KiwiSaver funds under management could grow at a rate of $1.5 billion a year from the present $2.9 billion, with $100 million a year going to property. Ong says, "This gives continued liquidity and support to the sector."