Market Place: Property reweighting likely

Look for a significant reweighting of Auckland's industrial property market, says CB Richard Ellis director and industrial specialist Paddy Callesen.

"We've never seen industrial yields below 9 per cent, but 8.5 per cent is commonly being talked about and 8 per cent is on the horizon."

Since 90-day bank bills fell last October from 8.5 to 4.5 per cent, average prime industrial initial yields have fallen from 10 to 9.25 per cent. Callesen says lower volatility than other sectors will help industrial property's risk premium to shrink and that, together with better rental growth expectations, will help yields to firm. In turn, that is reflected in higher capital values.

"This is reflected in investors placing their faith in listed property companies such as Property For Industry, where the shares have traded in a range that reflects yields of 8.25 to 8.5 per cent."

Callesen says pressure is coming primarily from syndicates, but increasingly the listed property and institutional investors are competing because they have become underweight in industrial property.

Recent sales have shown a site is more likely to fetch a stronger price if it has a good lease covenant than if its location is ideal or its facilities better. One example was the Station Rd, Papatoetoe, premises taken by Freedom Furniture on a 10-year lease. Callesen says this older property in a secondary location might have sold on a yield over 11 per cent six months ago, but with a good tenant on a long lease it achieved 10.25 per cent.

Callesen also doesn't mind if the international economy pessimists or optimists are proved right. Rental growth would re-emerge with economic growth in the United States, Australia and a recovering Asia. A world slowdown combined with high local liquidity should take interest rates down.

Auction demand

Investors bought seven out of eight commercial and industrial properties offered at Bayleys' Wellington auction last week, bringing in $3.6 million on top of the $6 million sold the previous day in Auckland.

In Auckland, the two-level, partly vacant office and retail building at 38-42 Broadway, Newmarket, sold for just over $2 million and the Howick & Pakuranga Times building on Union Rd, Howick, went for $1.525 million at a 12.1 per cent yield.

Other Auckland sales included a 424 sq m showroom/storage and office building on short-term leases, on Great South Rd, Penrose, sold for $350,000 at 11.4 per cent, and a 7670 sq m redevelopment site beside the Manukau Supa Centa on Cavendish Drive sold for $1 million, at $130 a sq m.

In Wellington, a local investor bought the six-level former St Helens maternity hospital in Newtown for $925,000 to convert it into residential accommodation. The part-vacant, four-level former Rural Bank building in Rangitikei St, Palmerston North, went for $1 million. The former UDC Building in Raroa Rd, Lower Hutt, with tenants on short leases, sold for $635,000 and a two-storey 766 sq m industrial property on Railway Ave, Lower Hutt, half occupied by a martial arts centre and the rest vacant, sold for $290,000.

In the Ngauranga Gorge, a modern 501 sq m high-stud warehouse unit with office and showroom sold for $356,000 at a 9.3 per cent yield. Two fully leased retail buildings on Geange St, Upper Hutt, went at yields of 15.6 and 11.8 per cent.

BOMA grows up

The change in name of the Building Owners and Managers Association to the Property Council of New Zealand has also brought a change at the helm. Former Auckland branch president and Kiwi Income Property Trust joint managing director Richard Didsbury takes over as national president from Chris Hardley, while Stuart Kendon of Fletcher Property becomes Auckland branch president.

National executive director John Dakin says the council has also more closely defined its focus and restructured its systems and membership. The membership fee will depend on assets owned for Auckland and Wellington members, with a half-price fee for members elsewhere to recognise different benefits.

Dakin says by restructuring things like audits, the council can devote more time and energy to advocacy.

After a vocal campaign against the Britomart development in Auckland, the council is now pushing for restructuring of local government. It is also concerned at where reform of the electricity industry is heading - "that's bureaucracy gone mad," Dakin says of the need to split lines and networks, and the clamp on large property owners trying to cut a deal to serve all their tenants. The council continues to push for removal of stamp duty, "an outdated tax," and is generally happy at the outcome of a Resource Management Act review.

The name change has already brought results. Dakin says the previous name was exclusive, but the Property Council has begun developing a group of corporate real estate users who regard property as a business input, like information technology.

Writer dies

Property Investor's Auckland contributor for 20 years, Colin Jenkins, has died after the return of an old illness.

Jenkins left the Property Council's waterfront seminar early last Tuesday and was admitted to hospital for treatment of the cancer of the lymph glands, which had struck him about the time he turned from being an engineer to writing about Auckland's commercial property scene. He died on Saturday, aged 72.

Jenkins and his wife, Joan, came to New Zealand in 1961 from South Wales. They have three sons and four granddaughters. Jenkins' funeral is at St Andrew's Presbyterian Church, Henderson, tomorrow.