Metro team tackle sub-$5m market

Colliers brokers Charlie Oscroft (left) and James Thorburn are shown around the site of the new Newmarket train station by Nour Ibrahim (centre) of Hawkins Construction. Photo / Supplied

Colliers International has established a new "metro team" to take advantage of a recent upsurge in commercial property confidence and to focus on the metropolitan investments area.

The "metro market" as defined by Colliers refers to a type of property rather than designated location or precincts, says Charlie Oscroft, Colliers' metropolitan investments manager.

"Metro, as we see it, falls into properties up to the $5 million range and is specifically non-institutional and non-corporate in terms of investors," Oscroft says. "This is one of strongest markets by transaction volumes and by values at the moment, and it is more active than, for example, the industrial market by quite a long way."

Stretching from the northernmost city fringe in Albany down to Drury, the sector comprises an investor base of owner-occupiers and family trusts, as well as individuals investing their own money. With an estimated total stock of approximately 1.25 million sq m, the market is one of the most valuable across the city, spread evenly across the Auckland city isthmus but dominated on the North Shore by Takapuna.

As revealed in Colliers' latest National Portfolio publication, which has just been printed, the metro market has demonstrated an uplift in value, yields and volumes over recent months as competing economic pressures create an active market.

To address the metro sector a team of 14 people has been formed under Oscroft, a 10-year Colliers veteran who previously managed the agency's successful South Auckland commercial team. The new metro team brings together Colliers' South Auckland and city fringe teams to maximise the agency's knowledge and approach to the sector.

"We are bringing the whole group together to re-launch our brand in this area which one of the biggest commercial property investment markets in New Zealand," says Oscroft. "Leveraging off both teams we aim to build our client base by creating area specialists and developing a more co-ordinated approach to metro property.

"We still have four slots available within the new team for the right people and we are hunting for prospective candidates by advertising at present for new recruits who would flourish as team players."

Oscroft says some of the metro property coming to the market in the current environment is realising "fantastic yields". In particular, properties with bank tenants are doing well.

"We have seen recently an ANZ-tenanted property on Dominion Rd sell for $2.5 million on a record 4.84 per cent yield and the recent auction of the Lincoln North Shopping Centre saw space leased to the BNZ sell for $2.3 million at 5.38 per cent, the ANZ unit sell for just over $3 million at 5.47 per cent and the Westpac property go for over $3.5 million at 5.65 per cent."

Team member Grant Magill says that it is not just banking tenants that are doing well for investors with Colliers' $45 million New Zealand Post portfolio sale in May proving to be a major indicator of the strength of investor interest.

"The NZ Post properties attracted significant interest from around the country, with 3500 online visits and over 60 offers, ultimately achieving a yield range of 5.38 per cent to 7.6 per cent and averaging 6.5 per cent," says Magill. "This showed that there are an encouraging number of active but unsatisfied buyers out there and that good real estate does not go out of fashion."

"Although vacancy levels have risen somewhat, mainly across B and C grade office space, downward pressure on rentals is easing, occupier demand is steady and investor demand is generally strong and strengthening.

"Vacancies are up, but not too badly, although we are seeing rental values drop across office and retail. Some tenants are downsizing and/or subletting but prime values are not dropping by as much as secondary property. In addition, landlords are focusing on tenant retention, competing more aggressively to keep tenants through, for example, reduced rentals, shorter lease terms, rent-free periods and new fit-outs."

James Thorburn, who covers the Parnell, Newmarket and Greenlane areas, says transport and infrastructure developments are changing the shape of Auckland. "Infrastructure developments are driving zoning changes in a number of areas as the Government's 10-year $3.75 billion investment spend starts to take effect," he says.

"For example, rail has opened up Great South Rd to the city, changing the landscape along the way. We are seeing industrial property along the route change zoning to retail, office and residential, opening up a myriad of opportunities for investors as trains increase frequency in peak hours, stations are upgraded and the network continues to be electrified with 140 new train cars."

Thorburn says development of the rail network in Newmarket is a good example. Already a key public transport hub, work is under way on the $70 million DART Newmarket rail upgrade that will include a new $25 million central railway station for Newmarket along with a junction upgrade, the construction of a new station on the corner of Park Rd and Khyber Pass Rd, plus the installation of double rail tracking.

The new central Newmarket rail "station will help revolutionise public transport in Newmarket", says Cameron Brewer, manager of the Newmarket Business Association. "The upgrade is long overdue and we're delighted with the look and feel of the station. When it's completed catching the train to Britomart will look a lot more attractive. A trip to Queen St is only $1.40 and eight minutes away on a train ride ... The new facilities will do for Newmarket what Britomart did for the Auckland CBD six years ago."

Among a number of properties, Oscroft is marketing the sale of the 646sq m Lighting Plus outlet on a corner site at 436 Broadway in Newmarket, along with colleague Tim Lichtenstein. Offers close on November 12.

"The current lease brings in a net income of $186,356 annually," says Oscroft. When it expires in 2010, there "will be an opportunity to redevelop the 1002sq m property or for an owner occupier to establish themselves in a high profile location on Broadway ... The property is opposite the Farmers store, surrounded by top brand retailers and across the road from the proposed 277 Broadway expansion."

Another key influence on the development of the sector is the wider economic environment. Metro team member Sue Collis says lower interest rates have provided the impetus for investors, while the likelihood is that more stock will come to the market the longer the difficult economic conditions for owners go on and bank funding access remains difficult.

"We are definitely seeing more stock coming to the market now compared with even last month as people continue to be squeezed. This is likely to increase over the next six months and will create good conditions for investors and increasing numbers of new owner-occupiers. Our view is that over the next period the Auckland metropolitan investment sales market will continue to be influenced by the inactivity of larger investors and investment funds, which offers a strong opportunity for metro investors to get into this market."