Big box sale in Wiri to excite savvy investors

Dick Smith's NZ headquarters and distribution centre at Wiri. Photo / Supplied

Dick Smith's New Zealand headquarters and distribution centre at Wiri are being sold by listed property trust Argosy to help reduce debt levels.

One of the bigger assets in Argosy's $961 million portfolio of 71 properties, the former Kmart distribution centre at 17 Mayo Rd is described by asset manager Warren Cate as among the best real estate on the market in terms of its location, a blue-chip Australian tenant, long lease term and potential for development.

Paddy Callesen, managing director for CB Richard Ellis South Auckland, says these are industrial-property fundamentals that serious and seasoned investors get excited about. "They are hard to find in today's market and properties of this calibre don't sit around for long."

CBRE and Colliers International are jointly selling the 3.2ha property by private treaty closing on August 10 and say its tenant covenant and location will drive value - as will the guaranteed rental growth of 2.5 per cent a year on the existing annual rent of $1.33 million over the term of the eight-year lease.

Callesen said Dick Smith, a subsidiary of Woolworths Australia, did a thorough search of the market and looked at 20 options including newly designed and built premises before settling on the Mayo Rd property that had been Kmart's distribution centre for 20 years before it expanded into a new warehouse at the Goodman-owned M20 business park nearby.

Dick Smith signed up for an eight-year lease with three six-year rights of renewal and moved into the property a year ago, after Argosy spent six months and $2.5 million on refurbishing the offices, creating a new entrance and staircase, installing a lift, extending the canopies over the warehouse to 765sq m and installing new lighting.

Greg Goldfinch, general manager for Colliers International South Auckland, said Woolworths executives opted for the property because of its large sealed yard, dual street entry, drive-around and drive-through capabilities and expansion possibilities. "The property has only 13,250sq m of existing buildings, giving 40 per cent site coverage, and there are plans showing a 5000sq m expansion to the existing warehouse could be possible."

Like many New Zealand companies spread over several properties, Dick Smith took the opportunity to consolidate its operations from the North Shore and Kerrs Rd into its new New Zealand distribution centre and headquarters.

Callesen said although the building was erected in 1988 by MFL and bought by ING (now Argosy) in 1992, it suited Dick Smith as the electronics company didn't need a high stud.

"At the knee, it is only 6m rising to 11m at the apex, but Dick Smith was able to buy the existing racking from Kmart, which made the move a lot easier and less costly."

Goldfinch's colleague, Andrew Hooper, says the property is typical of many of the big boxes in Wiri dominated by major distributors and manufacturers. "They are owned or tenanted by some of New Zealand's and the world's best-known brands including Kmart, Croxley, Bridgestone, Frucor, Downer EDI, Halstead Flooring and Progressive Enterprises."

Hooper said 10 years ago Wiri was viewed as a secondary industrial location. "Historically it had been fragmented but the opening of the State Highway 20 extension has done for Wiri what the Highbrook interchange did for East Tamaki - completely opened up the area for industrial development.

"The new roading infrastructure and the infill of the 40ha Fletcher Quarry on the corner of Wiri Station and Roscommon Rd, and the remediation of 39ha into Stonehill Business Park at McLaughlins Rd by developer Euroclass, has turned Wiri into a highly sought-after industrial precinct by major national and international tenants."

Colliers International and CBRE say there has been significant inquiry from companies wanting large warehouses in Wiri or Manukau because of the roading infrastructure. "We are working with more than half-a-dozen major multinational tenants who have their primary focus on Wiri," says Goldfinch.

Callesen says the Mayo Rd property will appeal to wealthy individual investors or substantial family trusts.

"Investors who can see that land values sitting at between $275 to $300 per sq m will drive rental rates are those who are going to benefit from buying this property.

"Inflation hasn't jumped out of the cupboard yet and people are reluctant to put their money in the bank or other types of investments. They want it in tangible assets with an income stream."

Goldfinch says the right type of industrial stock - carrying good tenants on solid leases - is producing firm yields and buyers.

"The Mercedes Benz building at Mt Wellington, with a rent roll of $474,000, sold to a private investor for a yield of 6.65 per cent and 126 Cavendish Drive - the home of Ray's Outdoors and Fleet Tyres - with a rent roll of $453,000 sold at a yield of 8 per cent."

Argosy's Cate says the property trust has not been a significant buyer in the past few years, typical of most corporates hunkering down to ride out the global financial crisis.

However, Callesen says the environment is right for corporates to start buying again - business confidence is up and that drives tenant demand.

Cate says the single most successful aspect of Argosy's business during the recession has been tenant retention. "We have had a large number of our tenants renew their leases and this has been encouraging in a market that has struggled to gain traction."