CBD commercial property more valuable than ever

CBD commercial property more valuable than ever

The value of quality commercial buildings in Auckland’s central city is as strong as ever, with demand for high-grade office space still outstripping supply, says James Kellow, Director of New Zealand Mortgages & Securities (NZMS) - Auckland's largest non-bank property development financier.

“Our view is good commercial buildings in downtown Auckland have never been worth more than they are today. This may surprise many given much of Auckland’s housing market is going sideways. However, in the central city desirable contemporary office stock is limited, overall vacancy rates remain low, and rents are still going up,” says Mr Kellow.

Many of the city’s existing office buildings continue to be converted into hotels and apartments, with the head of NZMS believing the repurposed buildings are not being adequately replaced.

Significant new-build projects including Precinct Properties’ Commercial Bay opposite Britomart and Manson TCLM’s $250m office development at 155 Fanshawe Street between Air New Zealand and Fonterra will deliver the CBD much needed international-quality office space.

However, he says given a lot of office development is largely pre-leased well before it’s completed, it doesn’t actually provide the Auckland market new leasable supply. Many tenants are moving from obsolete or end of life commercial buildings which are then often redeveloped as apartments or hotels.

NZMS’ joint venture partner and New Zealand’s largest private construction firm Mansons TCLM’s recently completed building on St Georges Bay Road in Parnell locked in Xero as its anchor tenant. While the new Manson-constructed, Augusta-owned building on the Broadway roundabout in Newmarket has been pre-leased by Mercury and Tegel.

The $300m Park Hyatt on Halsey Street is probably the best-known hotel currently under construction in Auckland’s CBD. However, Mr Kellow points to several other hotel developments underway in Fanshaw, Queen, Cook and Quay streets with most of them office building conversions.

“We know what hotels are coming, because NZMS is increasingly in the business of funding commercial developments.

“A lot of bank funding has headed towards the residential sector, as developers can struggle to secure bank finance for developing commercial buildings for offices. What’s more there’s just not the sites to pick off, with very little development land actually available.”

He points to Mansons TCLM which has only got 3,100sqm of land left for new office development in the CBD at 46 Albert Street. Once home to the New Zealand Herald’s former offices, Manson TCLM sold a 1,100sqm portion of that now cleared site for $31m in August with a hotel development of around 37 levels now planned there.

“It would be very difficult to find a commercial building in downtown Auckland that has lost value, with the only exceptions being buildings that landlords have simply not kept up.

“You’ve got to remember that many of the businesses today looking for new office space see it through a very international lens. They have international property managers making the decisions overseas based on international specifications and hence they demand international-grade buildings.

“As well as all the technology and environmental requirements, they want large floor plates for connectivity and hotdesking, mixed-use spaces, you name it. But the challenge remains that much of the city’s existing office stock just can’t provide anything like that!”

James Kellow predicts with increasingly healthy commercial property yields on offer, Auckland’s central city can expect a fresh wave of domestic and international investment in 2019.

www.nzms.com

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