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Commercial investment opportunity

In a time of increasing economic optimism and resurgence within the industrial property market, an opportunity has arisen for investors to buy five affordable units within a large single property - or the whole property itself - at 419 Church Street East, in the heart of Auckland's Penrose industrial precinct.

Friday, July 2nd 2010, 4:00PM

by The Landlord

For sale by deadline private treaty, with offers due to close on July 8, the property, owned by successful developer Southpark Corporation, is being marketed by Colliers International brokers Andrew Hooper, Dwayne Warby and Hamish West.

THE OPPORTUNITY
Warby says that the property will suit a wide range of buyers, offering the opportunity to purchase one or more of the five titles on offer or to pick up the whole property.

"This is a remarkable opportunity to buy into commercial property for as little as $550,000", says Warby.  "It is an investment that will have broad spectrum appeal, from smaller investors upwards."

He says that investors will have the opportunity to buy single or multiple unit titles, which would create "a great opening into the commercial property market at an affordable price, in a highly sought-after area and with a strong spread of tenants. There are not many opportunities to get into commercial property for $550,000, so this is a compelling alternative to residential real estate or long term bank deposits."

Equally, Warby says that the nature of the property, with a good balance of office and warehouse space, will appeal to passive investors, add value buyers or even a single buyer, who could pick up the entire offering and work through each unit title to add value. "This is a multi-choice option, to buy the whole thing or in parts."

PROPERTY & TENANTS
Hamish West says that first time investors will be able to take comfort in the nature of the building, of which the majority comprises office space. "This provides future-proof flexibility in that it will be easier to find tenants and simpler from a management perspective," he says.

The five unit property offers a total of 3144 sq m, split over two floors and 1448 sq m of office space and 1696.9 sq m warehouse areas.

Among the spread of tenants in the property, of most interest to potential buyers is the fact that Southpark Corporation, whose office is in the building's Unit E, will remain as a tenant on a six year lease for 409 sq m on the first floor of the building.

"Southpark Corporation is very committed to the property, this location and the wider area," says Southpark Chief Executive, Richard de Haast. "This is our head office, and the Hugo Johnston precinct is where the majority of our tenants and remaining development land are located."

Of the other tenants, robotic vehicle automation specialists INRO occupies the most substantial amount of space, with 1,667 sq m of ground floor space (463 sq m office, 1204 sq m warehouse) in Unit B on a lease that provides $178,000 per annum. A growing business that has Fonterra as a major shareholder, INRO uses robotics to automate existing forklifts, enabling the vehicle to drive by itself for the majority of tasks, yet still be operated manually for ad hoc work.

Fortlock Security occupies 262 sq m in the ground floor Unit A, on a lease that provides $52,539.96 per annum. Fortlock is a leading provider of custom risk management, security management and telecommunication systems which are designed to make New Zealand businesses and homes safe and secure.  With more than 18 years of experience in integrated security management systems, organisations from the retail, industrial, government, healthcare, commercial sectors and New Zealand home owners, make up the company's growing client base.

Of the remaining space, the vacant 492.9 sq m Unit C - once occupied by local automotive specialist Diesel Autos - has already been sold since marketing began and, although the 314 sq m Unit D is vacant, rent for the space is guaranteed by Southpark.

"The speed of the sale of Unit C demonstrates the strength of demand for this property," says West, adding that the property has a strong tenant spread. "All the tenants in the property are doing well and here for the long term. This is a strong tenant profile."

SOUTHPARK
Hooper adds that Colliers knows Southpark Corporation well, having worked with the company for about eleven years to promote their property estate.

"Southpark Corporation is the largest holder of vacant land within the Penrose, Mt Wellington and the Onehunga areas, with additional significant landholdings in Newmarket, Manukau and Orewa," he says. "They have a proven track record stretching back over 30 years."

Richard de Haast says that the company is a continuing success story in its specialist market of commercial, industrial and residential property development and management.  "We have successfully completed over 150 projects, mainly for internationally recognised companies, with over 50 projects alone in the Penrose / South Auckland area."

A privately-owned New Zealand corporation founded by John Sax, Southpark Corporation has been a leader in the redevelopment of much of the former ‘smoke stack industries' within Auckland such as Southdown Freezing Works - formerly owned by Affco, Hellaby Works, Shortland Works, Taniwha Works, Pikes Point and others.

One of the largest private industrial developers in the country, Southpark has just completed work on the second stage of development for Seamount, a 16,500 sq m warehouse at Pikes Point, says de Haast.

"We are refining our direction as a company, concentrating on major investments and developments. As part of this process, we are reviewing our portfolio and letting go of some of our passive investments, such as this building," he says, adding that the company intends to "apply the sale proceeds to take advantage of some of the complex and distressed asset purchasing opportunities that exist in the current environment".

LOCATION
Only 300 metres from Great South Road, 419 Church Street East is in "the blue chip core of Auckland's industrial heartland in Penrose", says Hamish West.

"Penrose is a well established industrial precinct that has become the best known and developed location for exporters and importers over the years. It continues to attract significant businesses and compete effectively with the newly established Highbrook industrial estate."

Describing it as "the centre of the industrial compass point", West says that the locality has multiple access points and numerous support businesses close by.

What he calls "the creep of redevelopment of Great South Road into commercial uses" means that the area is becoming more intensive, driven by the city spreading southwards. This he says is increasing amenity in the area as industrial sites morph into higher and more intensive uses, which in turn attracts a steady and regular labour force.

 "Penrose is becoming increasingly central as the city expands and more intensive development happens in the Greenlane corridor. This location therefore has great access to the city centre as well as the main motorways and rail, which are very close by."

MARKET COMMENTARY
Colliers International monitors around 9.86 million square metres of industrial property in Auckland.

Alan McMahon, Colliers' Research Director, says that the latest numbers show that the industrial sector is now coming into a growth phase. "As confidence levels recover and threaten to tip back into positive territory, it is industrial sentiment that leads the way. This follows the familiar theme we have mentioned before that, after residential, industrial tends to be the first property sector to recover after a downturn."

McMahon says that positive returns have been recorded this year in the Property Council of New Zealand/Investment Property Databank (PCNZ/ IPD) investment performance for industrial property. "Also," he says, "economic data is reasonably positive too, with GDP growing and unemployment possibly passed its peak. Certainly, the BNZ Capital performance of manufacturing index released in mid-May showed expanding manufacturing output for April for the third month in a row."

He says that although overall vacancy levels are slightly above their ten year average, various economic and business surveys have shown improved confidence this year, which is reflected in the increasing number of leasing enquiries in recent months and warehouse rents in prime Penrose locations holding firm between $100/m² and $115/m².

In McMahon's view, because industrial investors in Auckland are the most optimistic group - their confidence has improved from -62% 12 months ago to -4% in March this year - well located quality industrial premises with secure income are sought after.

"Penrose is very robust," he says. "Helped by steady demand, industrial yields have remained largely stable over the last 12 months. Indeed prime yields have shown signs of tightening in the second quarter of this year."

More details here

For more information

Hamish West
South Auckland Office

Mobile: +64 (21) 882-737
DDI: +64 (9) 356-8964
Email: hamish.west@colliers.com

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