Sylvia Park mall aims to get a lot bigger

Kiwi Income Property Trust has big plans for Sylvia Park. Photo / Doug Sherring

Parties have just under three weeks to voice opinions about development around Auckland's $452 million Sylvia Park mall.

The Auckland City Council last month notified Kiwi Income Property Trust's plans to build in and up on land around its Mt Wellington mall and has called for submissions by April 30.

Kiwi wants to build a mass of offices and apartments around the 71,057sq m mall and already has permission to double the size of buildings on the site and put up 148,000sq m, expanding the existing floorspace by 76,943sq m.

But it wants that pushed out to 250,000sq m. The final 50,000sq m of that will be residential apartments.

The mall at 286 Mt Wellington Highway generates about $27 million of annual rent and has 4002 carparks.

Kiwi says this is New Zealand's largest shopping mall and that it always planned to take advantage of big plots of vacant land surrounding the long, low thin mall.

It also wants to build far taller than it is allowed and 20-level buildings could rise there soon if its plans are approved.

Sylvia Park project director Andrew Buckingham said further stages of development had been planned for some time and it was heartening that Sylvia Park featured with Onehunga and Newmarket as one of three "principal centres" of Auckland's future.

Sylvia Park's motorway, bus and train connections made it ideal for growth, he said, indicating that mall workers might be forced to bus or train to the site.

"It has now been more than a decade since planning commenced to transform the Sylvia Park site from a collection of run-down World War II storage sheds into a comprehensively planned town centre," Buckingham said. "Since October 2004, when construction started, Kiwi has invested approximately $400 million into Sylvia Park."

Now, it wants to build on the approximately 17ha of vacant land surrounding the mall, which is positioned near the centre of the 24ha site, flanked by a railway line and two motorways.

Kiwi wants height restrictions lifted, enabling it to build 20-level buildings, or up to 60m.

With its existing 71,057sq m valued at $452 million, the completion of 250,000sq m of buildings on the site could be worth about $1.54 billion. Shops are valued at much higher levels than offices or apartments but Kiwi has grand plans for its land, which it owns freehold.

It only has permission now to build up from 15m to 24m, equating to about eight levels.

Kiwi's application says it wants to increase maximum permitted heights from 15m with permission to go up to 30m, to 24m with provision to go up to 60m.

Office blocks are planned along the Mt Wellington road frontage in an area now used for mall carparking. Two blocks are up but Kiwi has sought planning permission for a further two.

Buckingham said experts who Kiwi had employed had backed the plans for intensification.

"The plan change request is supported by comprehensive expert reports covering traffic, parking, urban design, landscape and visual, open space, retail and engineering.

"Particular attention has been given to ensuring that future developing is carried out in a manner that minimises adverse effects in terms of traffic congestion.

"It is proposed to ensure that public transport use is encouraged by controlling the number of parks available to staff and through implementation of travel management plans," Buckingham said.

Early in its life, the mall caused an outcry against Kiwi. Some institutional investors were angered by the unspectacular long-term yield from the development and complained about risks involved.

They eventually forced the manager to make concessions, agreeing to manage the project "at cost".

ING (NZ) investment manager Craig Tyson thinks Kiwi is unlikely to develop at Mt Wellington without significant tenant leasing pre-commitments.

He noted Auckland officials had earmarked Kiwi's site as a new town centre but said timing rather than any immediate plans to dig might have motivated Kiwi to get its plan change application in now.

"I just don't think it's going to happen anytime soon," he said, adding that the rents needed to justify the development expansion could well price them out of many tenants' reach.

Market speculation some months ago was that Inland Revenue was examining relocating to either Sylvia Park or Highbrook.

"Ultimately, I think it would be a good location for offices and it would certainly increase the foot-flow through the centre, which is what all mall owners try to do. I just can't see it being economic anytime soon given where economic rents are," he said.

Forsyth Barr analyst Jeremy Simpson issued a note on Kiwi's prospects this month after its portfolio value fell by 0.5 per cent.

Weaker office market rents were mostly to blame for value drops, he noted.

Kiwi announced a $74 million or 3.9 per cent fall in its portfolio to $1.85 billion for the year to March 31, 2010, he noted. However, valuations only fell 0.5 per cent or $8.7 million in the last six months. That was a very encouraging sign for the property market, Simpson said.

"While Kiwi noted that cap rates have stabilised in the office portfolio, valuation falls were a result of the weaker outlook for market rents.

"These falls were offset by some gains in the retail portfolio over the last six months, in particular at Sylvia Park in Auckland and the redeveloped Plaza Shopping Centre in Palmerston North.

"We are concerned that the CBD office market will remain weak for a while as detailed in our listed property outlook published on March 25, due to expected significant increases in vacancy rates over the next three years and further pressure on market rents.

"The office sub-sector is typically the last to recover from a property cyclical downturn. Once it stabilises, it can take many years until real and sustained growth in market rents returns. Kiwi's large and unique portfolio of major shopping centres (around 60 per cent of its portfolio) will continue to help offset office weakness," he said.

Kiwi had defensive cashflows and it remained one of Forsyth Barr's preferred listed property vehicles with its focus on tightly-held prime retail, office assets and its long-term bank facilities.

"Sylvia Park has been a successful development and Kiwi's prime CBD office portfolio is relatively sound given its low vacancy," Simpsonsaid.

"However, vacancy and rent review risks will remain for CBD office property for some time," he said.

SYLVIA PARK
* Where: 286 Mt Wellington Highway.
* Completed: June, 2007.
* Net lettable area: 71,057sq m
* Car parking: 4002 spaces.
* Occupancy: 99.9 per cent.
* Current valuation: $452m, previously $437m.
* Indicative 2010 net rental: $27.8 million.
* Railway station and bus interchange.
* Major Tenants: The Warehouse Extra, Pak'n Save, Hoyts, Foodtown, Borders, Dick Smith Electronics PowerHouse.
Source: Kiwi Income Property Trust