Sale of Auckland CBD office towers to ease
Brent McGregor, senior managing director of CBRE in New Zealand, with Auckland CBD city background.
The number of major Auckland office deals can be expected to slow with investment capital moving in a new direction towards the end of this year, says Brent McGregor, senior managing director of CBRE New Zealand.
“The ever-tighter investment market in Auckland due to the weight of capital, along with the number of office buildings being converted to residential use, is adding stimulus and viability to commercial development, which is good for future investors,” McGregor says. “It is also shifting investor interest toward development and into other major centres including Wellington, which is already the focus of numerous major marketing campaigns.”
McGregor has been involved in the sale of more than $500 million of commercial property this year alone..
“I am pleased to say that CBRE has been involved in the majority of major Auckland CBD deals concluded this year,” he says McGregor. “These have included AECOM House, Chorus House, the buyer side of the Lumley Centre, the 15-storey 280 Queen St complex; and the 17 level and 22 level twin towers at 205 Queen St - previously known as the National Bank Centre.
“While these are some of the major sales that have hit the headlines, there are also numerous transactions that are not yet public,” McGregor says.
AECOM House was sold to underlying landowner Ngāti Whātua Ōrākei Whai Rawa Limited while the ‘twin towers’ sold for $103 million. Another Queen St deal was the April sale of the BNZ tower at 125 Queen Street for $57 million
McGregor with colleague Warren Hutt and CBRE’s Christchurch managing director Mark Macauley brokered the sale of the $84 million sale of Chorus House on Wyndham St in the Auckland CBD to a private Christchurch-based investor.
In mid-July, through CBRE, noted Wellington property investor Caniwi Capital acquired a portfolio of six Inghams Enterprises chicken farming properties for $57 million from private equity owners. The properties include four breeder farms, a hatchery and a processing plant, all in the Waikato region.
The latest big news for CBRE was the confirmation by Dexus Property Group on August 15 that it had sold the Lumley Centre at 88 Shortland Street to German pension fund Deka Immobilien Investment GmbH for a 7.08 per cent yield at $146 million, subject to Overseas Investment Office [OIO] approval.
“This was CBRE’s eleventh deal with Deka but their first in New Zealand,” says McGregor.
“To bring this German purchaser to New Zealand, CBRE’s local team worked together with their Sydney-based International Investments team, led by Rick Butler.”
Butler says a Kiwi colleague working in the off-shore team based in Sydney has helped with attracting new capital to New Zealand.
“Deka has €16 billion [NZ$25 billion] of property assets under management and is an active property investor,” McGregor says.
“Much has been written recently about the attractiveness of New Zealand property to overseas investors. While some of the press hits the nail on the head - and it is undeniable that New Zealand yields are attractive to European and Asia-Pacific institutions with a net $188 million inflow of foreign funds into New Zealand property in the first half of 2014- it’s also worth remembering that many local investors are active too.
“For example, AECOM House was sold to Ngāti Whātua Ōrākei Whai Rawa Limited. Maintaining long-term New Zealand ownership was certainly a key factor in the sale from the perspective of its previous owner, Harbour 5, which continues to retain other holdings in the precinct and sees this transaction as a further positive step in its strong relationship with Ngāti Whātua. Chorus House was also acquired a New Zealand investor.”
McGregor says that AECOM House can in many ways be seen as a case study of some of the current market threads - the link between increasing development and investment sales.
“The previous owners of AECOM House, Harbour 5 Limited, part of a family owned business which purchased the land in 2008, progressed the eight-level five star green rated building in 2011 with the intention of holding the asset long-term. However when an opportunity arose for a negotiated sale with the underlying land owner, Ngāti Whātua Ōrākei Whai Rawa Limited, the directors felt this was an excellent prospect for both entities, the building’s tenants and the wider precinct in general.
“The opportunity also made real sense for the local iwi which had picked up the ‘marriage’ benefit value from combining the lessee’s and lessor’s interest.”
McGregor says that the buoyancy of the development market is evident.
“Towards the end of 2016 we expect the completion of over 85,000 sq m of newly built and substantially refurbished office space. These projects include new campus-style city fringe office premises like Mansons TCLM’s new 18,600 sq m building on Victoria St and Fonterra’s new head office in Wynyard Quarter which will fill a number of market niches.
“Wynyard Quarter is becoming a major focus for new office supply. Aside from the Fonterra building, an additional four projects are expected to add over 20,000 sq m by the end of 2016 to Wynyard Quarter’s office stock. Unlike the large campus style buildings, some of these new Wynyard premises will offer occupancy options for smaller to medium sized occupiers, some of it in ‘character’ style premises.
McGregor says that another market niche being filled by new supply is core CBD refurbished secondary buildings.
“For example, the refurbishments of 125 Queen St and potentially 22 Fanshawe St will bring on the market about 25,000 sq m of good quality occupancy options in 2015 for those seeking Core CBD tower style office space.
“However, the main market niche that is not currently being addressed by new supply is premium quality CBD office towers. This market sector has been inactive for new development during the past five years, and no new meaningful supply is expected until the latter part of this decade.”
McGregor says investor interest is being driven by office buildings being converted to apartments as well as by yields.
“We are seeing quite a few local and offshore groups wanting to buy into development sites – city and suburban – with mostly residential underpinnings. For this reason and others, we are observing a rising number of conversions, typically from secondary grade office buildings into residential uses.”
One prominent building undergoing such a transformation is the former Telecom headquarters building at 8 Hereford St in Freemans Bay that was purchasedby the Tawera Group, an award-winning developer.“A significant number of the 121 apartments now being planned in the new Hereford Residences development have been pre-sold, leading to more than 10,000 sq m of B grade office floor area being withdrawn from office stock,” McGregor says.
“All this conversion work is undoubtedly putting pressure on existing stock and thus on vacancy, which is already low in Auckland. The city has been the popular investment destination in the year to date but investor focus is now shifting to include other centres, including Wellington, where good buying opportunities exist.”
McGregor says Ryan Johnson, CBRE’s Wellington managing director, recently returned from a visit to Singapore, where interest in New Zealand commercial property continues to be strong.
Johnson says the Singapore government is trying to cool the market locally using tools like increased stamp duty and putting in place more loans to value restrictions.
“So foreign capital is looking elsewhere to invest and Australia and New Zealand are attractive options,” Johnson says.
Ryan Johnson, CBRE’s Wellington managing director: ‘Our office is working on ten different sales campaigns at the moment totalling around $225 million’.
Johnson says that this has led to a noticeable jump in investor interest in Wellington recently. “Three months ago there was little institutional interest in Wellington but now that yields are more attractive, at around 8.5 to 9.5 per cent, interest is rising from institutional Australian, Singaporean and Chinese investors.”
Johnson says the outlook for deals in Wellington is good in the second half of the year. “The interest shown is translating into activity already with our office working on ten different, mainly sole agency, sales campaigns at the moment totalling around $225 million.
“CBRE has control of a lot of stock. Our sole agency on the IBM/Datam house in Petone had more than ten offers, half of which were offshore investors. Other Wellington properties currently on the market and generating significant interest are 1 Victoria Street, being sold on behalf of ANZ bank, and Trade Me’s headquarters, which are generating significant interest.” In Christchurch a fully leased five storey office building redevelopment is being marketed for sale at 104 Victoria Street by Mark Macauley, managing director of CBRE Christchurch.
The property occupies a net lettable area of 3473 sq m with typical floor plates of 676 sq m. The building has four floors of office accommodation tenanted by California-based logistics software company Telogis and the ground floor contains a Tony Astle restaurant and boutique gym.