Atrium a feature of Penrose office building

The DNZ Property Fund is selling this four-level building in Penrose.

Modern property comes on to the market as vacancy rates of commercial property continue to drop

A modern four-level commercial property, with the potential to earn nearly $700,000 a year in rent and offering significant future flexibility for investors or owner occupiers, is for sale in Penrose on behalf of the DNZ Property Fund.

The freehold building at 8 Rockridge Avenue has hit the market as office vacancy rates continue to drop, says Jonathan Ogg of CBRE who, with colleague Bruce Catley, is selling it by deadline private treaty closing Friday, December 5, at 4pm unless it sells earlier by negotiation.

"The vendor's price expectations are currently below replacement cost, which provides considerable future value-add prospects for the purchaser," says Ogg senior director investment sales at CBRE.

The building has an A-grade seismic rating, assessed at 90 per cent of New Building Standard (NBS).

A total of 130 car parks includes 28 secure car parks on the ground floor within the building along with space for 102 vehicles on site.

"With good passing income, a strong opportunity exists here to harness the rental upside potential from the existing building and additions, given the size of the site and its zoning," says Ogg.

"All of these factors combine to offer considerable future flexibility for an investor or owner occupier. This is a great long term asset with scope to lift tenant income, or a superb place to own and base a head office."

Occupying a large 4900sq m site, the property has about 90sq m of frontage to Rockridge Avenue. Built by Fletcher Construction and completed in 1997, the building has a total net lettable area of 3149.3sq m.

"The sleek architecture which includes an atrium, and excellent stud height is complemented by quality fit out, raised flooring and up to date building services," says Catley, managing director investment sales for CBRE.

"The building has two 900kg Kone lifts providing access to all building levels," he says.

The property earns total annual income of $292,014.40 through leases to well established tenants: The Fletcher Construction Company, Matrix Security and Advance Retail Technology Limited.

Advance Retail Technology Limited is a member of 3Q Holdings Group of Companies, an Australian-based software and services company that focuses on the retail industry.

Matrix Security Limited is an established New Zealand-owned and operated security company that has been trading since 1993.

It has bases throughout New Zealand and employs over 250 people.

The Fletcher Construction Company Limited is part of the Fletcher Group, a familiar Australasian public company employing 8600 people in more than 50 businesses.

Ogg says the net income could be increased considerably.

"The tenants already in this building are well known organisations so there is a significant prospect of attracting additional tenants and increasing the total potential net income for the property, which has been estimated at $695,833 on an annual basis."

Catley says the property is close to a range of transport options.

"It is located on the southern side of the quiet street that is Rockridge Avenue and is about 150 metres from the intersection with O'Rorke Road, providing excellent access to the local arterial route along Church Rd and Station Rd.

"Great South Road is close by along with easy access to the State Highway One north-south motorway. A popular Kreem cafe is a short walk from the building and the Penrose train station about 600 metres away."

Ogg says that suburban office vacancy rates have been trending downwards since the first half of 2011 and have fallen in six of the past seven surveys carried out by CBRE Research. "As of mid-2014, suburban office vacancy in Auckland was 9.2 per cent equating to around 148,000sq m of office floor area.

"These figures reflect the strength of the suburban office market, as over this time some 79,000sq m of office space has been added to the market," Ogg says.

"Stock withdrawals for conversion, most commonly for residential apartments, are also placing pressure on suburban office stock so we expect suburban office vacancy rates to continue to decline into 2015."

Ogg says the decrease has had a substantial effect on yields.

"After peaking at 9.45 per cent in late-2010 and early-2011, overall suburban office yields have since fallen 170 basis points on average and were assessed at 7.76 per cent in September.

"We anticipate further average yield firming over the next two years, before a levelling-off at circa 7.28 per cent in early-2018."

Catley adds that net effective rentals have been rising since 2011, consistent with the decline in vacancy and reflecting a shifting emphasis to growth in face rentals.

"Another notable rental trend is the relatively strong rental performance of the secondary market sector.

"As of September 2014, indicative average prime suburban office rents were $320 per square metre, reflecting an increase of 5.4 per cent over the past 12 months, while average secondary rents were $220 - an increase of 9.5 per cent over this same period."