Plan’s zone changes boost Mixed Use property sales
Eden Terrace's Mixed Use zoning has resulted in a new residential township developing around Basque Park (lower foreground).
Zoning changes within the Proposed Auckland Unitary Plan (PAUP) which could enable owners of Mixed Use zoned properties in central Auckland to develop their properties to greater heights, are prompting a flurry of sales.
Bayleys Auckland’s City & Fringe team has sold in excess of $75 million of city fringe Mixed Use properties between Mt Eden and Grey Lynn over the past six months to a mix of developers and land bankers as well as investors looking for properties that offer opportunities to add value.
“Our team has already concluded more sales this year than for the whole of last year – which in itself was a very busy year,” says Alan Haydock, Bayleys commercial sales manager for Auckland City & Fringe. “Much of the increase is the result of purchasers positioning themselves for the increased possibilities that the proposed plan will open up,” he says.
Under the current Operative Auckland City District Plan (Isthmus Section) 1999, all Mixed Use zoned properties have a height limit of 15 metres or about four storeys.
“However, under the PAUP, the basic Mixed Use height allowance will increase to 16.5 metres and additional height overlays will allow property owners in certain locations to go up substantially further,” says Haydock.
Mixed Use properties are in high demand like 110 Mt Eden Rd which sold for $7,250,000.
“For example, in areas where the council is keen to encourage more intensive development such as parts of Grey Lynn, Newmarket and areas around Upper Queen Street, the height limits will increase to between 24.5 metres or six storeys and 32.5 metres or eight storeys.
“Interestingly, these additional proposed height overlays can vary within the same suburb and even along the same road. For example, at the Ponsonby Rd end of Great North Rd the overlay is 24.5 metres but further west it reduces to 20.5 metres and then to 16.5 metres.”
Haydock says another significant change which will come into effect under the PAUP will be the removal of current specified gross floor area ratios. Under the current Operative Auckland City District Plan, the basic floor area ratio (BFAR) in Mixed Use areas is two square metres of building for every one square metre of land, although this can increase to a maximum of four square metres of building with development bonus rights.
“These floor area restrictions will be removed under the PAUP which in combination with the increased height allowance will provide more development flexibility, although it won’t be open slather as there will still be restrictions relating to things like set backs from the street and view shafts.
“So there are now a number of factors in play, when considering what future possibilities a property might provide, and savvy investors are doing their homework and working these out. As a consequence, we are seeing quite a variation in the land values that Mixed Use properties are selling for, depending on what can done with the site and the quality of improvements.
Haydock says the availability of car parking is also a consideration for purchasers. “While increased height overlays may allow additional storeys, it’s an expensive exercise to create the necessary underground car parking to service the requirements of extra tenants and/or residents and this can impact on the viability of a development project. Therefore buildings with ability to provide good parking are more sought after,” says Haydock. “Corner properties are also sought after because they provide better car parking access, good natural light and can’t be built out which increases their development appeal.”
Haydock says that investors are scrutinising any tenancies that are in place to see if the rent being paid is below market rates and whether there might be an opportunity to lease up vacant space or reconfigure tenancies to also increase the income.
This property at 60-64 Upper Queen St sold for $3.9 million.
“If value can be added in these areas it means that the return from property that is acquired at an income yield of say 6.5 per cent, might be able to be increased to around nine per cent. At the same time, the underlying land value is likely to continue to increase because of the site’s longer term Mixed Use development potential which provides another avenue for capital growth as well.”
The Mixed Use zoning is designed to allow the development of “vibrant areas” by enabling a mix of residential, business, educational and leisure activities in areas of the city which have easy access to public transportation systems. Haydock says while there has been a lot of focus on residential conversions in Mixed Use locations there is also an opportunity for office development.
“Most of the current new office development in central Auckland is targeted at large companies or high profile professional firms. There is little that’s geared towards small to medium sized businesses which can’t afford the high rentals of these state-of-the-art buildings - so there’s definitely an opportunity for developers and landlords to provide good quality, affordable premises for this sector of the market.”
Haydock along with Bayleys Auckland colleague Damien Bullick have recently sold two office buildings producing substantial rental income and with future development potential on Mixed Use sites in Mt Eden Rd and Upper Queen St for a total value of $11,150,000 at sub seven per cent yields.
At 110 Mt Eden Road, Mt Eden an 1850 sq m office building with two levels of office accommodation and basement parking for 63 cars on a 1766 sq mcorner site with a PAUP height increase to 16.5 metres sold for at $7,250,000 at a 6.9 per cent yield on its four leases.
This warehouse at 9-13 Exmouth St, Eden Terrace sold for at $4.3 million.
At 60-64 Upper Queen Street, Eden Terrace a 948 sq m modern three level building with 31 car parks on a 660 sq m site with a PAUP 32.5m height limit sold prior to tenders closing for $3.9 million at a 6.5 per cent yield.
“While both were bought for rental income, the purchasers were also attracted by further potential from the greater development flexibility provided by the PAUP as well as the prospect of future rental growth,” says Haydock.
Haydock says Eden Terrace is popular with investors at present because of the huge growth that is occurring, particularly around Basque Park where a substantial residential community has become established.
Bayleys has sold two elevated properties in Exmouth Street overlooking Basque Park this year. The most recent of these was 9-13 Exmouth Street, comprising a 2125 sq m warehouse on a 1322 sq m site which was sold for $4.3 million at a 6.6 per cent yield by Haydock and Bullick in conjunction with colleague Paul Dixon. It had a lease back to the vendor’s business for one year.
Haydock and Cameron Melhuish have also sold a 3852 sq m four-level office building across the road at 10-12 Exmouth Street on a 2198 sq m site for an undisclosed sum in excess of this price. It was purchased from Air New Zealand by a developer intending to convert it to residential use and extend upwards. The height limit for this area will increase to 20.5 metres under the PAUP.
Nearby at 26-32 Virginia Avenue East, Eden Terrace, a2651 sq m three-level office and warehouse building with 52 ground and basement car parks on a 1541 sq m corner site sold for $7 million at an 8.95 per cent yield through Haydock and James Were.
Other recent sales of Mixed Use zoned properties concluded by Bayleys’ Auckland Commercial City & Fringe team include:
- 15 Gundry Street, Newton - an829 sq m showroom, office and warehouse building on a 910 sq m site that was sold vacant for $2,420,000 by Alan Haydock and Phil Haydock.
- 131 Khyber Pass Rd, Grafton – an 1835 sq m four level office building with 53 car parks on a 1490 sq m high profile site producing annual rental income of $595,000 was sold for $7,450,000 by Alan Haydock.
- 8 Roxburgh Street, Newmarket - an 842 sq mdevelopment site with a two level building was sold for $3,750,000 with holding income of $87,760 per annum by Scott Kirk and Were.
- 8-14 Railway Street, Newmarket – an extensively refurbished 1239 sq m two level retail and character office building on an 1823 sq m site with six tenancies on two to four-year terms sold for $6.7 million at a 6.1 per cent yield by Kirk and Were.
- 189 Balmoral Road, Mt Eden – a Mixed Use zoned 976 sq msite, overlooking Dominion Rd, with two buildings totalling 796 sq m partly occupied and producing holding income of close to $60,000 per annum was sold for $3,520,000 by Were and Kirk
- 25, 27, 29 Altham Avenue, Mt Eden – a 1518 sq m development site in three equal titles with annual holding income of $60,000 was sold for $3 million by Bullick and Haydock.
Alan Haydock of Bayleys.