Viaduct office sales top $750 million

3:37 PM Friday November 30, 2018 Paul Charman

Shaded areas indicate Viaduct office properties that have changed hands in 2017 and 2018. Photo / Supplied

A record three-quarters-of-a-billion dollars worth of office buildings have sold at Auckland’s Viaduct Harbour since 2017, with international investors jockeying for a slice of the action.

Bruce Whillans, managing director of Whillans Realty Group, says the recent sale of four more leasehold Viaduct office buildings comes hot on the heels of multi-national private equity firm Blackstone Group purchasing seven office buildings from GIC and Goodman Property Trust; and Roxy Pacific’s purchase of the NZI Building. The scale of investment in such a relatively short time is significant in more ways than one, Whillans points out.

“These 12 buildings represent nearly 15 per cent of Auckland’s total prime CBD office stock measured by floor area,” says Whillans.

“Eleven of these 12 buildings have sold to offshore institutional investors, illustrating the growing acceptance of Auckland as a destination for global fund managers.”

Whillans negotiated the recent sales of numbers 4 Viaduct Harbour Ave to Russell Property Group; and 10, 12 Viaduct Harbour Ave and 110 Customs St West, to Australian investment fund Quattro Asset Management.

According to Whillans, 10 years ago office deals north of $100in Auckland were the exception — but the market has come a long way since the last office cycle in the mid 2000’s.

“It’s a more diverse market with local high-net-worth private investors, real estate investment trusts [REITS] and syndicators now having to compete with Australian, Asian and US sources of capital.”

Whillans says aggressive pricing of prime office assets in Australia’s capital cities has fuelled the move by off-shore fund managers to diversify into Auckland.

“The Melbourne, Sydney and Brisbane markets are witnessing a re-calibration of commercial property yields as offshore capital drives asset prices skywards. Global investors now see Sydney on par with London, New York, and Tokyo and yields have followed suit. This is what has driven some of them into Auckland.”

New infrastructure projects, a growing population and a strong local economy are also underpinning the city’s office market.

“Not only is there a larger pool of investment grade stock, but there is also greater liquidity in the Auckland marketplace. This is giving offshore fund managers reassurance before entering the city. They have the knowledge that they can easily exit the market when the time comes,” he says.

“This current wave of offshore interest in our commercial property market is very different to the cycle we witnessed between 2005 and 2007,” he adds.

“The previous cycle was driven by hyper-leveraged investment funds that were wiped out during the global financial crisis. But what we’re witnessing now is the arrival of a new breed of well-capitalised offshore investor.”

At 4 Viaduct Harbour Ave, the former Bayleys building fetched $22m. The 7340sq m building sold with vacant possession, equivalent to $2997 per sq m, Whillans says.

The managing director of Russell Property Group, Brett Russell, plans to convert the building into a new 150-room QT hotel, that will be fully operational in time for the America’s Cup and the Apec Summit.

Whillans says these two events are expected to attract over 200,000 visitors. “Auckland’s hotel market is undergoing an unprecedented period of expansion, supported by record tourism numbers, occupancy rates and revenue growth.”

The Ministry of Business and Enterprise expects international visitor arrivals to New Zealand to rise 37 per cent to 5.1m by 2024. And about 67 per cent of NZ’s international visitors arrive in the Queen City.

In a separate transaction, Quattro Asset Management paid $28m for the portfolio of three leasehold office buildings, at 10 and 12 Viaduct Harbour Ave; and 110 Customs St West. “Quattro intends to upgrade and activate the three buildings because rents do not reflect their premium waterfront position,” says Whillans.

The buildings at 10 and 12 Viaduct Harbour Ave form part of the Maritime Square office block, developed in the late 1990s and early 2000s.

This area encompasses some distinctive Georgian-styled office buildings, which are strategically positioned between Fanshawe St and the waterfront.

The property at 110 Customs St West is a four-level building with 2356sq m of net lettable area. It occupies a premium corner position in The Viaduct with uninterrupted harbour views.

Quattro’s executive chairman, Andrew Saunders, says the portfolio represents a strategic value-add acquisition for the fund. The hotel conversion of the neighbouring 4 Viaduct Harbour Ave takes out 35 per cent of the office stock on The Viaduct waterfront, he says.

Average floor plates of the buildings are around 400sq m, which Saunders considers “the best size for SME office space in Auckland. This backs up our strategy in buying No 1 Albert St, which we purchased through Whillans in August last year.”

Quattro Board member, Nick Hargreaves says Blackstone’s acquisition of the Goodman/GIC VXV precinct underlines the attractiveness of the area as an office destination.

Whillans says the Blackstone deal also illustrates that international investors are becoming more comfortable as Auckland matures as a city.

The chief executive of TRAMCO, Angela Bull, says the attraction of investors to Viaduct Harbour as a premium commercial precinct is no surprise; it offers an unrivalled location and waterfront amenity..

“The Viaduct is Auckland City’s premium watefront location and we’re delighted to be getting such high level of interest in it.

“People want to live within walking distance of the City’s great bars and restaurants. And demand for a Viaduct address is only going to accelerate, particularly as the 2021 America’s Cup regatta nears.”