The three-level character building at 375 Karangahape Rd, Auckland CBD. Photo / Supplied
The commercial property market continues to show sustained growth on the back of low vacancy, with demand continuing to outstrip supply, according to the latest independent research commissioned by Barfoot & Thompson Commercial.
"Our progress in overall transactions throughout Auckland is proceeding ahead of expectations with investing in commercial property continuing to be a secure and positive long term investment asset," says Simon Farland, commercial sales manager North Shore Commercial branch, in launching the agency's second Insite portfolio publication for 2019.
Referring to market reports commissioned from Livingston and Associates, Farland says new industrial property development is under way in the outer Auckland regions and in the northern, southern and western edges of the city to satisfy ongoing demand.
"There are also significant new office developments in the central business district and new areas such as the popular Highbrook, with these developments being either pre-let prior to construction or being developed to meet an identified demand.
"Additionally, to satisfy consumer demand we are seeing new retail developments, or extensions to existing shopping centres, in Newmarket, Sylvia Park and Botany Town Centre to name a few.
"Relatively higher yields are a main attractant drawing investors to commercial property with low yielding equity markets — both local and international — being priced at all-time highs.
"Bank deposit rates are at low levels and the OCR [official cash rate] is now at 1.5 per cent with market commentators forecasting it to go as low as 1 per cent in the near future.
"All this make commercial property yields look very attractive.
"Rental growth in our markets is also now a reality," Farland says. "Feasibility studies for new developments require higher rentals to justify the cost of development and our recent leasing activity illustrates that tenants are prepared to pay these new rental levels."
Farland says Auckland remains New Zealand's economic powerhouse.
"Robust population growth, increased infrastructure expenditure and residential and commercial construction activity are expected to continue to underpin the city's economic growth in the short to medium term. "Slower national economic growth, and softening business and consumer confidence may limit the region's performance.
"As a result, the moderate growth in the region's economic activity is expected to continue to result in increased demand for commercial and industrial space within the city."
The newly-released Barfoot & Thompson Commercial Insite portfolio contains 24 properties from all over Auckland with 16 for sale by negotiation, four by deadline private treaty and four by tenders; along with two properties for lease.
A feature property in the portfolio is an Auckland City fully tenanted building with a mix of award-winning dining, hospitality and office tenants.
"This passive investment property with long term leases has been refurbished and seismically upgraded to 100 per cent of New Building Standard [NBS]," says agency broker Rex Fowler who, with colleague Reese Barragar, is marketing 375 Karangahape Rd for sale by deadline private treaty closing 2pm on Wednesday August 14, unless it's sold earlier.
The three-level character commercial building, inclusive of basement level, has a net lettable area of 543.85sq m and occupies a freehold 224sq m land site.
Fowler says the property generates net income of $269,340 plus GST per annum from leases with a weighted average lease term (WALT) of seven years.
The property is zoned Business-City Centre and is subject to a 27m height limit on the northern boundary and a 30m height limit on the southern boundary.
Hospitality tenants include Cotto Restaurant which won the Metro Peugeot "Best New Restaurant of the Year" award in 2018, and the Anthology Lounge. The three office tenants are Mineral Ltd, Bernau Architecture and Simply Pure Limited.
Barragar says the interior of the building, on the northern side of K Rd, is fully equipped with fire sprinklers. "An open-plan ground floor has pedestrian entry directly into Cotto off K Rd.
"The restaurant features a tasteful character fit-out providing a warm dining atmosphere, that is further improved by a recessed area on the western side of the property which is flooded in afternoon sunlight.
"The top floor is configured into three separate office tenancies with central and shared amenities and kitchenette," Barragar says. "Mineral occupies the southern end which overlooks K Rd; architect Bernau Architecture occupies a tenancy to the middle of the western side with an outlook across the State Highway 1 motorway; and Simply Pure is to the northern end.
"The basement level comprises Anthology Lounge Bar in open-plan space with stairs leading down from the ground floor lobby and two bathrooms immediately to the south. Secondary egress is provided to the northwestern corner."
Barragar says the building's construction is of concrete slab, retro-fitted steel columns and beams, concrete T-sections; brick and rendered plaster exterior; metal framed joinery and corrugated iron roof.
He says the completion of the City Rail Link (CRL) will further enhance the value and development potential of the property with a new train station planned within 150m of the building.
"More than 500 apartments and hotel rooms have been constructed within 500m of 375 K Rd, which is in the midst of a regeneration precinct driven by increased residences, improved retail outlets and a strong future outlook for growth.
"A greatly increased pedestrian count is forecast with the CRL station on the corner of nearby Mercury Lane and East St poised to be one of Auckland's busiest. Though completion is several years away, overseas experience shows that substantial residential and retail build up surround train stations — a fact that has not been lost on commercial investors who are looking to take positions in this currently under-valued location," Barragar says.
Not far away from K Rd, another property in Auckland Central with a long-term lease is featured in the new Insite portfolio.
"The property is currently undergoing massive conversion to three separate residential units," says broker Bruce Jiao who, with colleague Gary Seekup, is marketing Unit 1 at 39 Pitt St for sale by deadline private treaty closing at 4pm on August 21 at Barfoot & Thompson Commercial's Takapuna office.
At the corner of Pitt St and Hopetoun St, the property comprises a ground floor retail/office area of 210sq m, tenanted to property management company Mehome Ltd on an eight-year lease through to January 29, 2027.
"This new lease, which earns annual net rent of $120,000 plus GST plus outgoings, has a final expiry of January 2039 — if two six-year rights of renewal are exercised," Jiao says.
Seekup says the stratum-in-freehold unit occupies a high-profile corner position in a mixed apartment, townhouse, office and retail development known as Hopetoun Delta Complex.
To the east of the city in Newmarket, a prime retail investment property is also featured within the new portfolio.
"This property is in one of Auckland's most tightly-held and sought-after retail destinations," says commercial sales agent Andrew Clark who, with colleague Cam Paterson, is marketing 188-192 Broadway for sale by negotiation.
The standalone two-level, retail and office building, with basement storage, encompasses total lettable area of 535.02sq m on a 230sq m freehold site zoned Metropolitan Centre under the Proposed Unitary Plan and is fully leased earning total net income of $285,294 per annum plus GST.
"International retail brands 2XU and Ecco Shoes occupy the ground floor, while two separate office tenants lease the first floor along with a basement tenancy," Clark says.
The building comprises a ground floor area of 190.02sq m, a first floor area of 180.1sq m, and a basement of 164sq m.
Paterson says a new owner looking to the future could consider redevelopment of the site to take advantage of its 11.3m frontage to Broadway.
"The opportunity to secure similar standalone retail properties, right in the heart of Broadway, are exceptionally rare," he says.
"Located opposite the well-known Rialto Centre and cinema complex, 188-192 Broadway benefits from large volumes of foot traffic generated by a controlled pedestrian crossing that provides a direct link between the property and the Rialto Centre.
"Major public and private development projects include Westfield's extension of its 277 department store and a major expansion of the University of Auckland's campus.
Paterson says the exterior construction of the building consists of a concrete foundation and brick veneer walls with part plaster finish. Internal walls incorporate both timber and metal joinery; while the roof which, was replaced in August 2006 is .55 Custom Orb Zincalume.