Manukau tower would crown a portfolio

11:01 AM Saturday October 25, 2014 Colin Taylor

Office building for sale at 5 Osterley Way, Manukau.

A solid Crown tenant on a nine year lease and a net return of over $1.5 million a year is expected to make an eight level Manukau office a sought-after property for well-heeled investors, syndicators, institutional property companies and large family trusts.   

“This property at 5 Osterley Way has been tenanted by government departments since it was built in 1979 by Fletcher Construction,” says Paddy Callesen, Savills joint managing director who is featuring it for sale with Kevin Richards, the agency’s senior executive, capital transactions.

With Glen Hitchcock, South Auckland sales manager for Barfoot & Thompson Commercial and his broker colleague Rob Taylor, the Savills’ agents are jointly marketing the property leased to the Inland Revenue Department by way of a private treaty closing on Thursday November 20.

Situated on a corner site with Osterley Way and Amersham Way in the heart of Manukau, the building’s graduated design has made it a CBD landmark.

Callesen says the 6554sq m net lettable property, with 49 basement car parks on a 1793sq m site, is being sold to take advantage of the relatively strong commercial office investment market.

Just over a year ago Callesen and Richards in conjunction with Barfoots sold the five level Merial Tower at 2 Osterley Way to a offshore ex-pat family for $9 million.

Callesen says the property is a "rock solid passive investment" and prospective investors will be impressed by the quality of the recently refurbished tower.

Richards says 5 Osterley Way is a step-up for investors. “It is larger, has a long-term Crown tenant with rights of renewal, is leased at market rates, has a solid cash flow and has recently been extensively refurbished to a high standard. It has all the hallmarks well-versed commercial property investors normally look for.

The building is constructed of reinforced concrete with aluminium joinery and it serviced by new air-conditioning and three new Kone lifts from the basement to level seven. Access to the 135 sq m eighth level is by stairs only and is available for lease. “The building is more effective as the floors descend,” says Richards.

The first and second floors are over 1000 sq m, the third floor 998 sq m, fourth floor 846 sq m, fifth floor 706 sq m, sixth floor 578 sq m and seventh floor 462 sq m.

“It is seismically robust property. Part of the tenant’s refurbishment deal with the landlord was making sure the building was at an appropriate seismic strength.” Currently it has an A rating and a 100 per cent National Building Standard (NBS) rating.

Richards says the tenant has invested in a high security fit-out and has modern meeting rooms, break-out areas, high-tech communications and pleasant office areas that function well. Level four has a large kitchen and staff area, while wood panelling is a feature of each lobby from levels one to seven.

“Although the tenant fully occupies the space and is the sole occupant of the building, a right to surrender levels six and seven every three years on six months’ notice has been built into the lease,” says Richards. “This is common practice for many government leases in today’s market and is not necessarily a negative to the lease term”.

Total net income of $1.546 million equals an average rent of $218 sq m, car parks at $35 per park per week and average operating expenditure of $63 sq m.

“While the property does not have any significant capital expenditure requirements in the short to medium term, it could benefit from external aesthetic upgrades,” says Taylor.

Zoned Business 3 under the Auckland Council District Plan, the property will be zoned Metropolitan Centre under the proposed Unitary Plan. If the plan is adopted, the new zoning will allow a maximum height of 18 stories and a minimum of one car park per 30 sq m of gross office floor space.

Hitchcock says it is an ideal property to add to an investor’s existing portfolio. “It is a no fuss bottom drawer investment. The tenant has about eight years to run on the lease as well as three, three year rights of renewal. If the renewals are exercised the lease doesn’t run out until 2030.”

Pedestrians can enter the building from Amersham Way with access to the basement car parking from Osterley Way. Adjacent to the property is the Westfield Manukau Shopping Centre while the State Highway One and SH20 motorway ramps are nearby.

Key infrastructure development completed in Manukau last year includes a $95 million rail station redevelopment providing an integrated transport hub and interlinks with MIT’s central Manukau campus.

Richards says Manukau is one of New Zealand’s fastest growing areas, with business growth focused on business park, distribution and industrial sectors. “Manukau has three main office areas – central Manukau, the airport precinct and Highbrook/East Tamaki.

“Central Manukau has more than 120,00sq m of office space, with the majority of buildings constructed before 1990. The area of occupied office space grew by 1000sq m between March 2010 and March this year. The major tenants are Crown departments and Auckland Council.”

Callesen says the majority of buildings in Manukau City are tightly held.

Savills research show the volume of office building sales has increased over the past two years driven by strong overseas investor interest.

Richards says typical office building yields in central Manukau range between 7.5 per cent and 8.5 per cent and sale prices ranged from $5 million up to $93 million over this period, while returns improved as a result of declining vacancy rates and modest rental growth.

He says Auckland’s metropolitan office market has an average vacancy rate of about 9 per cent, while central Manukau’s office vacancy rates sits at about 9 per cent and space taken up by tenants over the past five years has varied up to 4000sq m a year.

“New development opportunities in central Manukau are limited by a lack of development sites but rents are similar for buildings of the same quality in the rest of Auckland’s southern metropolitan office market.

“Central Manukau is a lower cost alternative to new build developments in Highbook/East Tamaki and the airport precinct.”

Research figures show the underlying demand for office space in greater Auckland should continue to grow next year, driven by increased economic activity and employment growth.

Callesen says this demand is likely to be unevenly distributed across sub-markets. “Tenants are likely to continue to look for large format buildings in suburban markets. Rents for existing older building will rise slightly, but investor demand for office buildings is expected to be strong for well-located, good quality office building investments.”