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Yields Continue To Tighten For Well Located Commercial Property

A continuing contraction of investment property yields and a good level of demand for well located tenanted and vacant premises were features of Bayleys’ final Total Property auction for the year.

Bayleys’ Auckland commercial and industrial director Lloyd Budd says the sale of a variety of tenanted offerings at net rental income returns of below or around five per cent confirm that yields are continuing to track interest rates down.

“Bank deposit rates have dropped significantly in recent months to below one per cent which opened up a bigger yield gap with commercial property returns than has existed for some time. However, our latest auction results show that property yields are now also adjusting downwards again and this may well continue into the New Year,” Budd says.

“The auctions showed we are also returning to more of a two-tier market where strongly located properties are generating most interest while those that are not so well positioned are finding it harder to attract investors.”

The highest priced property to sell, occupied by an organic supermarket on the North Shore, also produced the lowest yield. The 743 sq m building located on a 764 sq m site at 14 Clyde Rd in Browns Bay sold for $4.201 million at a 4.65 per cent yield.

The property has an eight-year lease from February 2018 to the Huckleberry Farm organic grocer with fixed rental increases of 2.75 per cent. Established in the 1990s, the company has six stores in the northern North Island.

Bidding commenced at $3.2 million and the offering was declared to be on the market at $3.975 million, meaning it had reached its reserve. A further 82 bids were placed by several parties, including many $1000 increases, before the hammer finally came down - adding a further $226,000 to the final sale price.

Rajan Unka, who marketed the property with fellow Bayleys Commercial North Shore colleagues Michael Nees and Terry Kim, says the purchaser was a neighbouring owner who saw long-term strategic value in owning this property. He says the building benefits from dual front and rear access, with public parking at the rear shared by a New World supermarket and a Countdown supermarket also located across the road. “The property is located in a prime position in the sought-after and tightly held Browns Bay town centre which added to its investor appeal.”

Selling at 4.72 per cent yield was multi-tenanted retail premises on a site with mixed-use development options in Glen Innes’ town centre. The 153 sq m single-storey, standalone building located on 164 sq m of land at 149-151 Line Rd was sold for $1,340,000 by Matt Lee and James Chan of Bayleys’ international division.

The building is currently fully leased to a pharmacy, barber and kebab food outlet. Lee says the site’s Town Centre zoning allows for a maximum possible building height of 32.5 metres and offers future intensive development potential encompassing retail, office and/or residential activities. “Tamaki Regeneration, jointly owned by Auckland Council and the Government, is progressing a 20-year project to revitalise the Glen Innes town centre. There are also substantial current works and future plans for nearby large-scale affordable housing projects.”

A recently refurbished 100sqm retail unit with four car parks at 2020 Great North Rd, Avondale sold for $701,000 at a 4.75 per cent yield through Rick Kermode, Jarrod Qin and Nicolas Ching.

“This was an affordable, easily managed investment opportunity, well positioned in the Avondale town centre,” says Kermode. “It’s in a popular price range for smaller investors, well below the average house price in Auckland.”

Other Auckland investment properties to sell at auction included:

  • A 400 sq m, two-level unit-titled property at 250 Mahurangi East Rd, Snells Beach was sold for $1.45 million at a 5.53 per cent yield by Chris Blair and Henry Napier of Bayleys Warkworth. The ground floor is leased to an equipment hire company with the upper level currently housing a two-level apartment with potential for office conversion.
  • An 868 sq m industrial building on a 1320 sq m corner site at 18-20 Keeling Rd, Henderson was sold for $1,880,000 at a 6.12 per cent yield on a new six-year lease by Mark Preston, Damien Bullick and Sam Raines.
  • A 446 sq m two-level commercial building on a 481 sq m site at 35-39 King St, Pukekohe’s main street, was sold for $1.91 million at a 5.07 per cent yield by Shane Snijder and Peter Migounoff. It has pet shop and chiropractic tenancies on the ground level with office accommodation above.

Also selling at a Total Property auction in Rotorua was a ground floor commercial unit with Bayleys Rotorua as the anchor tenant. Located at 1092 Fenton St, the 353 sq m premises plus three dedicated car parks, was sold for $1.692 million at a 5.27 per cent yield by Mark Slade and Brei King.

The auction was brought forward after the vendor received an offer they were prepared to accept which became the declared reserve of $1.55 million. A further 50 bids from three parties drove the final price up a further $142,000.

Located on a corner site in a prime position within the city centre, overlooking the Village Green lakefront reserve, Bayleys occupies 213 sq m on a lease to 2025, with two further six-year rights of renewal. The balance of the unit is leased to the Lime Café until 2021, with two four-year rights of renewal.

Four vacant properties also sold at the Bayleys’ Auckland auctions ranging in price from $540,000 for a 232 sq m industrial unit at 27 Waipareira Avenue, Henderson to $1.19 million for a 242 sq m strata titled office floor at 128 Broadway, Newmarket.

Lloyd Budd says vacant buildings are continuing to attract interest from owner occupiers, particularly those with strong relationships with their banks who are finding they can debt fund the purchase of premises at a lower cost than renting.

“They are also attracting attention from more entrepreneurial investors who are prepared to take a punt on finding a tenant in anticipation of receiving a better income return than if they had bought it already leased.”

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