CBD heritage property has the X factor

The X Gallery building at 18-26 Wellesley St, Auckland CBD.

A landmark Auckland CBD heritage property that originally housed the city's first telephone exchange is for sale following a major makeover which attracted a variety of retail and office tenants to the building.

The early twentieth century X Gallery building at 18-26 Wellesley St occupies a 1032 sq m freehold site on the corner of Wellesley St and Lorne St with a frontage also onto Khartoum Place.

The fully leased building is for sale with 12 tenancies in place earning net annual rental income of just under $1.5 million and is among over eighty commercial and industrial properties, including a number of other heritage offerings, featured in Bayleys'mid-year national Total Property portfolio launched yesterday.

"This building has been meticulously refurbished into one of Auckland's finest examples of modern character space incorporating retail and office accommodation over four levels," says Robert Platt of Bayleys' central Auckland office who, with colleague Colin McKenna, is selling the property by deadline private treaty closing August 20, unless it sells earlier by negotiation.

The Level One area leased to Designworks.

"The renovation has included a major structural strengthening and seismic upgrade of the building to 100 per cent of New Building Standard [NBS]," Platt says. "This has also opened up the option of adding over 10,000 sq m of additional floor area at some stage in the future."

The building has an Historic Places Category B classification and was designed by government architect John Campbell in an Edwardian and Baroque style. The first section was completed in 1916 to house a post office and telephone exchange.

Growth of the telephone service meant that an extension was soon required and this was completed in 1927 doubling the building's size. In the days before automatic telephone exchanges, many operators were employed in the building.

In 1951, the Wellesley St post office was relocated and the entire building became the Central Auckland Telephone Exchange. In 1992, the property was purchased by the Auckland Contemporary Art Trust and underwent an award winning internal refurbishment. The New Gallery hosted numerous art exhibitions, including many on behalf of the nearby Auckland Art Gallery but the trust decided to put the property up for sale in 2012 following the expansion of the Art Gallery.

The most recent, year-long refurbishment, completed in August 2014, has created two levels of offices with a large, luxurious lobby and 10 retail and food premises. Platt says the current owner worked closely with Heritage New Zealand in the redevelopment of the property. Engineering consultancy BGT Structures was also contracted to design and monitor the strengthening work. This included new full height concrete shear walls through the middle of the building, with reinforced concrete piles, the addition of steel plates on top of existing floors as well as roof and wall strengthening.

A ground floor lobby area is leased to Gloria Jeans Cafe.

Platt says the ornate exterior of the building is largely as it was originally designed apart from the addition of balconies, entrances and glazing. "It's also a striking building inside with a mixture of timber and exposed concrete and brick finishing blended into the superbly presented fit out along with modern building services."

The reconfigured building with a gross floor area of 3095 sq m now has 1820 sq m of net lettable office space and 891 sq m of retail and food premises.

In the lower ground level area, accessed off Lorne Street, The Zap Thai Restaurant will open its fourth Auckland restaurant in November occupying 240 sq m of space on a 10 year lease.

A Gloria Jeans cafe has also taken a 10 year lease over 124 sq m in the ground floor lobby area accessed off Khartoum Place. This is one of thirty franchised Gloria Jeans outlets in New Zealand and is part of a worldwide network of 900 coffee houses in 39 countries. Platt says the X Gallery cafe was the first new format store to open in New Zealand with fresh branding and an upgraded interior design which has made the most of the building's high stud and exposed brick walls.

Nine smaller retail premises ranging from 31 sq m to 97 sq m are located at street level - six with frontage onto Wellesley Street and three on Lorne Street. These all have new glass and steel shop entrances apart from one which has retained historic timber doors and a mosaic tile entry. The shops have a variety of finishes including new stained timber floors, marble tiles and polished concrete floors.

Robert Platt, Bayleys central Auckland.

They have varying lease terms ranging from four to 10 years, plus rights of renewal, and are occupied by a mix of food tenants and boutique clothing stores along with Core Electronics, which provides repair services for iPhones, iPads and Apple macs as well as selling reconditioned products; and Campuspecs, an optometrist and eyewear store targeting the student market.

The food outlets comprise Bruce Lee Sushi, CooCup, a new Asian fusion takeaway concept, Falafel Federation, a new initiative from the owner of the Star Kebabs franchise, and the first New Zealand shop for Gong Cha, a fast growing Asia tea brand with over 600 stores globally.

The two upper floors of just over 900 sq m each have two leases running until late 2019, with six year rights of renewal, and include extensive fit out works owned by the landlord. Level One is leased to Designworks, one of New Zealand's longest established design and brand marketing businesses.

Its space has new polished concrete floors, glazed meeting rooms, a large kitchen with oak cabinetry and stone surfaces; and new high quality toilets and shower facilities with hexagonal ceramic tiles, European fittings and marble vanity tops. External balconies overlooking Khartoum Place are also incorporated into this tenancy.

Designworks, which employs around 150 people at six offices in New Zealand, Australia and Singapore, is now part of Australasian media and advertising conglomerate STW Group which leases the top floor on a separate lease. This floor is subdivided into three office tenancies with a shared central area comprising glazed meeting rooms, reception, kitchen, new toilets and shower facilities.

Three companies occupy these premises: Ikon Communications, an online agency specialising in website creation and content, The Brand Agency and Union Digital which was recently been acquired by Designworks but continues to operate as a standalone agency.. They are all part of STW Group which comprises over eighty specialist companies generating A$442 million (NZ$495.4 million) worth of revenue and a net after tax profit of A$49.5 million (NZ$55.5 million) in the 2014 financial year.

McKenna says an investigation into the property's zoning indicates another 10,320 sq m of buildable area could be added provided a conservation plan, to incorporate and protect the existing heritage building, is prepared and approved by the Auckland Council as part of the resource consent process.

Colin McKenna, Bayleys' central Auckland.

"The award winning expansion of the nearby Art Gallery is an outstanding example of what can be achieved with the redevelopment of an historic building. To facilitate the possible future expansion of the X Gallery building, all the leases contain a clause enabling the owner to gain full access to tenants' premises for reconstruction or structural alterations at any time after June 30, 2019, subject to three months' notice. In the meantime, the property is producing a substantial cash flow and has good rent review provisions."

McKenna says the property is located on a high profile corner site in the strong Lorne Street retail precinct, one block back from Queen St, and is exposed to a high volume of passing pedestrian traffic to and from the university precinct.. A pedestrian count over a 14 hour period showed that 8729 people walked past the building's Khartoum Place frontage and 7797 walked past the Wellesley St frontage.

"Being close to Queen Street gives easy access to public transport links and there a number of public car parks nearby," McKenna says.