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Despite an aura of doom and gloom pervading some sectors of the commercial property market, CB Richard Ellis has completed one of the largest property transactions of the year with the sale of a GE Finance-owned building at 49 Symonds St for around $35 million to a private German investor.
Warren Hutt, managing director of CBRE's Auckland office, and senior managing director Richard Horne negotiated the sale of the 12-level Grade B office tower block that has a combined total net lettable area of 10,129sq m.
GE Finance NZ acquired the property in late 2005 as part of a three-year calculated investment plan. This included the refurbishment of office space across four levels of the building with various service upgrades including a new access control system and the refurbishment of four high-speed lift cars.
Horne says the sales process was assisted by CBRE working closely with GE Finance's real estate arm.
"This close relationship allowed for accurate and detailed property lease information to be provided to prospective buyers throughout the sales process in a confidential manner."
A strategic leasing plan was also implemented under the management of CBRE that includes an average lease term of just over four years. The building, which is now fully leased, hosts leading corporate organisations like Vodafone, Telstra and the University of Auckland.
"The leasing strategy came together extremely well with the University of Auckland taking two floors," says Brendan Keenan, investment analyst of CBRE. "Vodafone renewed its lease and expanded in the building while Rayonier and Quintiles were signed up to lease further office space. We also completed a complex car parking head-lease to Tournament. This combination of leasing successes drove up the income derived from the building by 20 per cent. At the same time we reduced the building's operating expenses by around 10 per cent."
Developed in 1990, the original site plans included a second office tower to be positioned on a podium level over the carpark designed as Lot 2.
The new owner has no immediate plans for development but the site is capable of accommodating an additional office tower of around 12,000sq m of lettable space subject to obtaining all the necessary resource and building consent approvals.
Hutt says the sale of 49 Symonds St was the result of a "team effort".
Along with its own asset management expertise, GE Real Estate identified business partners to pursue a successful investment strategy for the building, drawing on CBRE's property management and agency expertise, along with the input of SGA, Golders and Hawkins Interiors.
Hutt says the building is well located within the Auckland city fringe.
"Symonds Street is within minutes of Queen St and [the] Auckland CBD. The building itself is also positioned in the heart of New Zealand's premiere educational and IT/telcos hub. The University of Auckland, SAP, Telecom, CallPlus, Brother and Oracle are all within the immediate area."
Keenan says Symonds St has become an alternative destination for many large corporations looking to relocate near the central business district without having to pay premium rents for core CBD space.
"It's not surprising that 49 Symonds St is fully leased when you consider it has attractive parking ratios, easy motorway access, its closeness to top-class hotels and its harbour views. With core CBD rentals continuing to grow, city fringe sites such as 49 Symonds St are becoming a very competitive and feasible alternative."
"The purchase opportunity was originally identified as having a location and quality of building that was about to experience a surge in rentals," Hutt says.
"There was 25 per cent-plus rollover in tenancies in the area which would enable GE to take advantage of the anticipated surge in rental growth where minor refurbishment would pay dividends."
Hutt says GE Finance executed its business plan for the building within the set time scale and achieved over 20 per cent return on equity despite the yield softening 40 basis points.
The building is likely to continue benefiting from supportive occupier conditions in the foreseeable future, says Zoltan Moricz, research and consulting director for CB Richard Ellis.
"The CBD office vacancy rate is still at long-term lows with a general lack of leasing options for good-quality space. CBRE's research data shows that the tight prime market had a beneficial flow-on effect on the performance of good-quality Grade B office buildings such as 49 Symonds St.
"During the past two years, Grade B buildings had the greatest improvement in CBD office vacancies with the rate halving from 10.7 per cent to 5.1 per cent. This has been reflected in rental growth," Moricz says.
"Grade B market rental growth has averaged 8.2 per cent per annum during the last five years, peaking at over 10 per cent in 2007.
"Despite some softening in market sentiment, the positive momentum has carried over into 2008."
Tenant demand for Grade B buildings is favourable from occupiers looking for office space that is well-maintained and functional, and that provides a corporate image and environment but without the expense of prime buildings, he says.
Moricz says favourable vacancy rates, continuing positive demand and a proposition that offers good value for occupiers will underpin the future investment performance of Grade B buildings such as 49 Symonds St.
