Huge power station site to spark global interest

5:00 AM Saturday October 24, 2015 Colin Taylor

Aerial view of the huge 38 hectare Contact Energy Otahuhu Power Station site for sale – identified by a red border.

Following its closure in September, Contact Energy’s huge 38 hectare Otahuhu Power Station site adjoining State Highway One 18 kms south of the Auckland CBD, is for sale and being marketed as an ideal site for a new business park or corporate headquarters.  

“The property’s size and location give it considerable strategic importance midway between the city and airport,” says Andrew Hooper of Colliers International who, with colleagues Hamish West, Andrew Reed and Greg Goldfinch, is selling the property over four titles at 8-10 Sparky Rd and 8 Gridco Rd, Otahuhu, by deadline private treaty closing on November 18.

“This is a prime, once in a lifetime opportunity for an industrial owner occupier or developer to purchase a massive parcel of land alongside the southern motorway on which to construct a large-scale flagship facility or a business park.”

The vast, flat waterfront site includes large tracts of undeveloped greenfield land, a network of formed roads, various decommissioned electricity generation buildings and other structures.

Otahuhu B station - office and admin block across undeveloped land - towards Highbrook Drive.jpg

View of administration and office block on the Otahuhu Power Station site – with some of the undeveloped land also included in the sale in the background. 

Of the four titles, the biggest is largely undeveloped and makes up around 35 ha.. Three other smaller titles house the former Otahuhu B power station, the Otahuhu A switchyard area and coastal structures including a weir which forms Lake Otara.

The buildings are described as “generally well maintained” and include two former power station buildings. Otahuhu A was a diesel and gas fired power station first commissioned in 1968. The plant stopped generating electricity in 1996 and was closed in 2013.

Otahuhu B was a 400MW gas-fired combined cycle power station, which operated from 1999 until its recent closure this year.

Under the terms of the sale, Contact Energy has the right to remove any or all of the plant and equipment before settlement.

The property is at the gateway to the popular Highbrook and East Tamaki industrial areas and intersected by Highbrook Drive, which has access to north and south on and off-ramps to SH1.

To the north, the property fronts the Tamaki Estuary and Otara Lake, while the southern boundary sits alongside the Transpower Otahuhu Substation. To the east, across Gaye Creek, is the residential suburb of Otara and Auckland International Airport is 17 kms away.

Hooper says the scarcity of large-scale developable land in the South Auckland industrial market is expected to draw interest in the property from national and international industrial users like freight providers, manufacturers and businesses which operate big distribution centres.

Developers are also likely to consider the site with a view to subdividing it for a large multi-unit development, he says.

“Auckland’s forecast population growth means the demand for land within the city’s urban boundaries is reaching unprecedented high levels. Many large industrial businesses are outgrowing their current premises and face a shortage of available sites big enough to build new facilities to accommodate their future expansion. So we expect this huge site, less than 20 minutes’ drive from the centre of Auckland, to attract considerable interest,” says Hooper.

West says the property’s location within easy reach of the city centre will also be a strong drawcard. “It’s extremely rare to be able to purchase a site of this size in metropolitan Auckland with excellent motorway access. Opportunities just don’t come up for development on this scale.”

He says the site’s current Business 5 zoning permits a variety of industrial and commercial uses, making it ideally suited to a single large owner occupier or a multi-unit business park-type development.  

“It allows for a business estate or a big warehouse with plenty of yard space to be constructed. Demand in the market is increasing for shed sizes of up to 30,000 square metres as businesses scale up to meet growth targets. This site could easily accommodate a user of that size, or multiple office and warehouse facilities which could be leased to various businesses,” West says.

“Goodman’s Highbrook Business Park which borders the site has been a huge success and demonstrates the unsatisfied appetite for industrial property in this area. This property is also expected to bring inquiries from buyers with alternative development visions for its future.”

Otahuhu B station.jpg

Close up view of Otahuhu Power Station – station B. 

West says there is only 248,000 sq m of industrial space available across Auckland with just 38,000 sq m considered to be high quality, modern space.

“Although there is a healthy development pipeline, it’s likely that, with vacancy rates at all-time lows, the new supply will be snapped up as soon as it becomes available.”

Reed says there could be a number of options open to such groups, provided their plans are aligned with Auckland Council’s vision for the future of the city.

“The site is flexibly zoned for industrial and commercial uses but buyers could consider applying for a zone change to allow other developments including mixed use purposes which combine residential, retail and commercial elements.”

He cites research by Colliers International showing that prevailing industrial market dynamics are drawing in investors, resulting in more industrial properties being sold in Auckland each year than in any other non-residential property sector – making up almost half of all transaction activity.

Hooper says the compelling supply and demand scenario which is active in most property sectors in Auckland mean the requirement for developable land has never been greater.

In the residential market, the current shortage of residential dwellings is expected to intensify with an estimated 400,000 new homes required across Auckland by 2041. The supply of new housing is not keeping up with demand with around 8200 new dwellings consented in Auckland in the year to September which is well under the 13,000 expected to be required to meet household growth demand.

“Auckland Council’s concentration on intensification rather than sprawl, as articulated in the Proposed Auckland Unitary Plan, demands a rigorous construction programme in the areas identified for growth within existing urban boundaries. Sites like this one are therefore obvious candidates for consideration by residential developers,” says Hooper.

He says a severe shortage of premium new office space in the central business district is also prompting office-based businesses to look further afield to the suburbs.

According to Colliers International’s latest research prime office vacancy rates have dropped to the lowest in Asia Pacific,

Retail vacancy rates are also down across the entire Auckland metropolitan area with a combination of rising house prices and real wage growth fuelling consumer confidence and a surging demand for retail space.

Reed, who is Colliers’ international director of capital markets, is handling expected overseas interest in the property. He says global capital continues to be attracted to strategic New Zealand opportunities, with several European, Asian, Canadian, US, UAE and Australian investors continuing to look at Auckland as an attractive market for quality land holdings.

“New Zealand offers a very compelling investment environment at a time when international buyers are broadening their search beyond Asia and Australia to New Zealand. Our stable political environment and the strong growth forecast for the population and for the real estate market means land holdings like this one are viewed as valuable assets among overseas investors for land banking and investment purposes.”

New Zealand also offers offshore investors a transparent real estate sector, expected solid long-term returns based on favourable economic and demographic forecasts and a benign tax environment, Reed says.

“We are also ranked highly compared with other countries in terms of investor protection, lack of corruption and ease of doing business – all strong drawcards for foreign buyers looking for portfolio diversification.”

West says the area is already premium business zone, with many top-tier businesses now operating at Highbrook including CourierPost, DHL, Fuji Xerox, IBM, LG, Mainfreight, OfficeMax and Panasonic.

“The area is also a convenient place to hire employees bordering the large residential catchments of Otara and East Tamaki.” 

Andrew Hooper, Hamish West, Andrew Reed.jpg

Andrew Hooper (left), Hamish West (centre), and Andrew Reed (right), of Colliers International.