Eateries flavour of month at auction

The Great Cafe in the Sunnynook Shopping Centre on the North Shore, producing net annual rent of $36,000, sold for $610,000. Photo / NZ Herald

Cafes and restaurants were flavour of the month with investors, resulting in a number of these and other retail outlets adding plenty of spice to Bayleys' end-of-year Total Property auctions.

Over $40 million worth of commercial and industrial property was sold at the North Island auctions, with 19 properties in Auckland selling before, during, or shortly after the auctions.

Two of the eateries on offer sold at yields of less than 6 per cent. An 83sq m Asian restaurant located at 9-11 Victoria St East in Auckland's CBD sold for $768,000 at a 5.9 per cent yield through James Chan and Quinn Ngo of Bayleys Auckland.

Located next to the entranceway to the refurbished Lister Building, the restaurant is situated between two of Auckland's most popular retail streets - Queen St and High St. It is currently producing net annual rental income of $45,622 on a three-year lease to Victoria Cafe Ltd, with two-yearly rent reviews.

Chan says property at this rental income level doesn't become available in the CBD very often, which boosted its appeal to smaller investors who competed strongly for the offering on the auction floor, with latter bids increasing by increments of $500.

Chan was also involved in the sale of an even smaller property with a big name on the North Shore - the well established 72sq m Great Cafe in the Sunnynook Shopping Centre is producing net annual rental income of $36,000 and sold under the hammer for $610,000 for a 5.9 per cent yield.

Marketed in conjunction with Nicolas Ching of Bayleys Auckland and Damian Stephen, Bayleys North Shore Commercial, Unit G at 120 Sunnynook Rd has a new six-year lease to the Great Cafe with two-yearly rent reviews.

Chan says the property is in a strong corner location in the shopping centre, close to a Countdown supermarket. He says these types of smaller cafes are popular with investors, particularly if they are located in areas of high pedestrian traffic, because there are generally plenty of other operators ready to take them over should the existing business decide to move out. Also selling on the Shore was a 144sq m unit occupied by a cafe at 59 Apollo Drive, Albany, which went for $960,000 at a 6.85 per cent yield. Unit A1 has a new 10-year lease to Sticky Fingers Cafe & Deli, with two-yearly rent reviews.

Caleb Belling of Bayleys North Shore Commercial, who sold the property in conjunction with Richard Moors, says it attracted strong interest because of its high-profile road frontage on to busy Apollo Drive and its location within an attractive office precinct which has undergone substantial growth and development in recent times.

Further south, a 120sq m cafe designated Shop H at 258 Puhinui Rd, Papatoetoe, sold for $522,000 at an 8.6 per cent yield through Geoff Wyatt and Tony Chaudhary of Bayleys Manukau. It is occupied by VnA Cafe on a six-year lease from May 2008, with two-yearly rent reviews, and is within a retail convenience centre on a busy arterial road between Manukau City and the airport.

Chris Bayley, Bayleys' general manager commercial and industrial, says investor demand for well-located, good-quality retail property, of which cafes and restaurants are a popular segment, has continued unabated in 2009, with big crowds turning up for the auctioning of these types of offerings.

He says yields for top-quality retail properties below $5 million have moved little, with most emphatic evidence of this being the sale of all 22 shops put up for auction in the Lincoln North Shopping Centre in Henderson in July, in which 12 of the offerings sold at yields of less than 6 per cent.

Bayley says the retail property sector has its own dynamics, which means it generally performs well in all market conditions.

"The old real estate adage of 'location, location, location' has a lot to do with it. Vacancy rates for well-located retail outlets are low, even in times of recession, and if a tenant does leave it is generally easier to find a replacement than with other types of property," Bayley says.

There is also a strong local Asian component to the market, particularly in Auckland. "Local Chinese, Korean and Indian investors who moved to New Zealand and who set up successful retail businesses are now moving up the property chain," says Bayley. "They have extensive networks among their cultural communities so that if a tenant moves, they have a selection of other occupants ready to move in.

"The nature of retail property investment in Auckland now reflects how the city as a whole has become such a vast cultural melting pot - embracing cultures from Southeast Asia, the Indian sub-continent and the Middle East. We are seeing more and more buyers from these ethnic backgrounds and this year has shown that they are active in all market conditions."

The highest under-the-hammer price achieved at the Total Property Auckland auction was $3.25 million for a Gull Service Station at 388 New North Rd, Kingsland. Located in a high-profile automotive and commercial development completed in 1999, it sold at a 7.6 per cent yield through Stuart Bode of Bayleys Auckland. The property is occupied by Gull Petroleum (NZ) Limited on a 15-year lease that runs until August 2014, with five further rights of renewal of five years each. The rental is reviewed every two years to CPI, with a minimum increase of 2 per cent and a maximum of 8 per cent over the review period.

Chris Bayley says there were also good results from Total Property auctions held in other parts of the North Island, with eight properties selling at a Bayleys Wellington auction.

"It's been a strong end to the year and we will be looking to build on the momentum in the market generated by these auctions with the release of two portfolios in early 2010, which we are currently sourcing properties for."

One of these will be a Greater Auckland portfolio, which will be released in late January, while Bayleys' first national Total Property portfolio for 2010 will be available in late February.