Grandstand value-add CBD investment comes to the market
Grandstand value-add CBD investment comes to the market
| 9 February 2019
A significant opportunity has arisen to secure a freehold office asset of scale with significant profile in an increasingly popular precinct in Auckland’s CBD, with steady income and plenty of room to add value into the future.
Located in a grandstand position above Fanshawe Street, McGregor says the property occupies a high-profile location with views overlooking the Waitemata Harbour.
“35 Graham Street is in an outstanding location, taking pride of place on the edge of Auckland’s original foreshore. The immediate area, known as Victoria Quarter, has experienced significant change over the past decade with the addition of multiple new office developments accommodating the likes of the telco provider Spark and media network NZME. The regeneration of Wynyard Quarter and commercial tenants such as Fonterra, Datacom and Air New Zealand has also proven the desirability of this location for occupiers and investors.”
The property currently consists of a four-storey office building constructed in 1997, when the development incorporated the original foundations and a small area of supporting heritage structure and mosaic artwork of the BJ Ball building that was previously on the site.
McGregor says the property offers large rectangular floor plates of up to 3,439sqm, allowing tenants to improve efficiencies and reduce costs.
“The large floor plates provide the opportunity to split floors to satisfy tenant leasing demand with a central core, splitting the floors into two wings, east and west while atriums in each wing provide good natural light to all floors.”
With an A Grade seismic rating, the property is well positioned to attract corporate tenants and has a current rental value of $3,975,000 pa + GST. It is currently 100% occupied by Auckland Council and a leaseback agreement forms part of the sale and purchase agreement.
McGregor says the two-year lease provides investors or developers with the opportunity to plan for future repositioning or redevelopment while receiving strong holding income.
“Whether it’s as a hotel, apartments or new office building, the location, views and underlying land zoning of 35 Graham Street presents multiple options to add value. Opportunities include refurbishing the current office space to achieve greater rental growth, as well as the potential to add up to a further 8,588sqm of GFA. With 12,515sqm of NLA, 2,525sqm currently being used as storage this space could potentially be converted to approximately 76 car parks.”
The maximum development potential for the site based on permitted and maximum total floor area ratio controls sits between 14,523sqm GFA and 19,364sqm, providing significant additional development potential.
The property will benefit from the substantial and ongoing investment into infrastructure and commercial projects within the immediate surroundings including a new linear park along Victoria Street and the $3.4 billion City Rail Link – New Zealand’s largest infrastructure project ever undertaken. The new transport connection and added public amenity in the area enhancing the property’s value as office space at a time when there is no shortage of demand.
Says Holmes: “There’s no doubt that Auckland remains a very desirable market, with strong population growth coupled with CBD employment growth helping to provide a positive outlook for the CBD office market.
“Over the next four years to 2022, CBD office supply is expected to increase by 97,800sqm, representing 7% of current CBD stock. While vacancy is expected to increase over the short term, positive absorption should keep vacancy below long-term averages.”
The site’s proximity to the new $700 million New Zealand International Convention Centre, which is less than 1km away, will also heighten its prospects as an attractive investor asset, says Holmes.
“With international visitor arrivals increasing by more than 840,000 over the past five years, at an annual average growth of 7.6%, 35 Graham Street also offers potential as a future hotel site. The Auckland hotel market has experienced strong demand growth with limited increases in supply for a number of years resulting in a booming market for hotels.
“All hotel segments are achieving record occupancy levels in excess of 80% with an overall market average of 83.7% in the 12 months to September 2018. All segments are also achieving record Average Daily Rates (ADRs) with a current market average ADR of $210 representing an increase of 2% on the previous year.
“On the residential front, strong demand, a growing owner occupier market in the Auckland CBD, and low level of supply being brought to market is resulting in a decline of unsold stock and providing good presales take up for CBD apartments, where at any given time around 80% of the pipeline is presold.”
Maginness says with Auckland being one of the fastest growing cities in the Asia-Pacific region currently, averaging 3.9% real growth per annum over the past five years, now is the time to secure an asset with the scale, versatility of uses and strategic location of 35 Graham Street.
“With firming yields and strong fundamentals as part of a growing economy, Auckland continues to remain an attractive market in the Asia Pacific region. In this context the security of income along with the size of the site and existing building and the ability to add additional floor area to create a large-scale mixed-use development will ensure 35 Graham Street will be highly sought-after asset and one to secure as 2019 gets underway in earnest.”
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