Kiwi Income looks at developing $130m office tower

The country's largest listed commercial and retail landlord is considering building the biggest office development in years.

The $1.8 billion Kiwi Income Property Trust is mulling a $130 million Auckland office tower development.

Buffy Gill of Goldman Sachs JBWere said the deal looked "relatively attractive" because Kiwi Income had negotiated with a single tenant on an 18-year lease.

Sources yesterday speculated the new development would be for a bank on leasehold land Kiwi Income is looking at around Halsey St in the Western Viaduct Basin area.

ANZ National Bank is a Kiwi Income tenant in the 26,141sq m high-rise National Bank Centre on Queen St, a property valued at $100 million in Kiwi Income's half-year accounts, down $9.1 million in the six month period.

Kiwi Income disclosed that 2917sq m of that block was empty, the single largest slice of vacant space in its office portfolio. The centre has a 12 per cent vacancy factor.

Kiwi Income also disclosed that ANZ National's lease was the largest single tenancy due to expire in the next three years.

The bank leases 12,045sq m in the tower. Kiwi Income said 12 per cent of its portfolio expires in each of thenext five financial years and the ANZ National lease expires by 2012.

Other banks have shifted as big new developments are completed. Westpac has already completed a partial move to Cooper and Company's Britomart and will finish that when the new East building is finished.

BNZ is gradually moving from the Sultan of Brunei's 125 Queen St to Brookfield Multiplex's Deloitte Centre at 80 Queen St.

The terms of ASB's lease in Brookfield Multiplex's ASB Building on Albert St could also make it a candidate for a new Kiwi Income building, one source said yesterday.

The office development opportunity would be Kiwi Income's first big building project since it finished Sylvia Park in 2007, which by September 30 this year was valued at $437 million, down $11.7 million.

Sylvia Park has 71,057sq m of net lettable area of which 100sq m is vacant.

Gill said the benefits of any new development by the trust would depend on market prospects.

"The actual level of value-add will be dependent on the initial yield and scope for rental growth of the development," she said.

Kiwi Income noted the grim outlook for Auckland's office market, citing CB Richard Ellis's market monitor projecting 10.2 per cent vacancies, rising commercial vacancies and softening premium CBD yields.

Auckland's CBD has a large number of new developments on and 130,000sq m of office space coming on to the market in the next three years.

But most of that is pre-committed, including the new Telecom HQ on Victoria St and the East building in Britomart.

Gill said Kiwi Income was in good shape, regardless of whether it put up a new building.