By Bob Dey
Sanitarium is looking for a stiff price on its two Queen St buildings, on which NZI took out purchase options in the 1980s when it owned the rest of the block between Shortland St and Vulcan Lane and was planning a major redevelopment.
NZI's properties, held by Sentry Investments
for Scottish parent General Accident, went to three buyers for a total $25 million after being put on the market in 1997. NZI's two head office buildings on Shortland St went for $6.9 million and the Prudential sale at $3.3 million was capitalised at around 8 per cent.
With NZI's grand plan gone, Sanitarium is looking for better than an 8 per cent yield on net rent of $425,000 from the Boots building (occupied by Cammells the Chemist) and the Sanitarium building, no longer occupied by the cereal company but by two small shops with a subtenant upstairs.
Pushing the yield down to 7 per cent would raise the price from $5.3 million to $6 million, which makes it a fully priced retail sale compared with the wholesale deals the Healy brothers and Mission got on Sentry's buildings on the block.
To get a margin on that - plus the cost of refurbishment - a buyer would have to look at raising rents beyond the current market standard of about $1200 a sq m.
Grant Hargrave, of Jones Lang LaSalle, says the Queen St maximum is about $1500 a sq m, but rent levels depend on the size of premises.
The value of upper floors has been unlocked in the Whitcoulls block further up the eastern side of Queen St, with an entry off High St and a side entry off Durham St East, but those options are not possible for small holdings lacking a staircase with street access.
The Sanitarium building has direct Queen St access to the first floor but the Boots building does not. Hargrave says the site would suit two-level retail, as Camera & Camera has done with its premises. He sold that and the Marbeck's shop on a 7.43 per cent yield, and since then has achieved 7.9 per cent with sale of the Just Jeans building.
Hargrave rejects the suggestion that rents can not go higher to meet stronger capital values, though he does not expect rents to leap upward. The tender closes with Hargrave at Jones Lang LaSalle on July 22.
