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News Release

Auckland

New Private Owner will Rejuvenate Auckland Community Asset


 

 

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The Metro Centre sale will facilitate a rejuvenation of one of Auckland’s landmark retail and entertainment hubs for the better of the community.


AUCKLAND, 5 July 2011 - The Metro Centre at 291-297 Queen Street sold in June 2011 at a discount to the Government Valuation of $57 million, with the new owners looking to rejuvenate the community’s major Auckland CBD retail and entertainment complex after an extended period of vacancy in 13.3% of its total lettable area.

The Metro Centre is a landmark in Auckland’s city centre at the top of Queen Street and is positioned next to the newly revamped $80 million Aotea Square. The iconic building is deemed by the Auckland Council to be in an area with distinctive style for business shopping and dinning and is being promoted as a vibrant dynamic cultural hub. The Centre provides the Auckland CBD with an important community asset for retail and entertainment including cinemas, corporate and sporting events, cafes, restaurants, fast food, gaming and more.

Event Cinemas who have a lease expiry in 2029 are a major drawcard to the complex, with little competition in the surrounding locality. The retail and entertainment complex is situated immediately adjacent to a large public council owned carparking building with internal access allowing for ease of parking.
While Event Cinemas have recently taken over from Sky City Cinemas with no disruption to services, the premises suffered after Planet Hollywood and Opium restaurant vacated in 2005. Despite numerous leasing attempts, the space has been vacant ever since.

Jones Lang LaSalle’s John Binning and Nick Hargreaves who brokered the deal on behalf of Orchard Funds Management note the space was vacant due to the limited amount of capital spent on refreshing the space once it became vacant.
“The retail sector is incredibly competitive and unless the right shopping or entertainment experience can be achieved with a good fit-out, many retailers will not attract enough customers to be profitable. However, with the new local owners, this won’t be a problem and the injection of capital into a refurbishment programme for the space will undoubtedly achieve strong enquiry once Jones Lang LaSalle’s marketing campaign begins,” says Binning.
Binning also notes that when considering possible investors they established immediately that the community icon needed a nimble, add-value investor to unlock its full potential.

Binning says “the calibre of the property was reflected in the enquiry we received. JNJ Holdings Limited understood the beneficial characteristics of the site incorporating a vision of what the complex would be able to offer once fully rejuvenated”.

“The new owners could bridge the gap between passive and add-value investment, which can be challenging for many, especially in the current market environment. After careful consideration and thorough due diligence, JNJ Holdings bid appropriately and was successful in the Expression of Interest process,” he says.

The large sale quantum and the attention required due to the complexity of the multi-tenanted site required the due diligence process to be as expedient as possible.
Nick Hargreaves notes that Jones Lang LaSalle has advised on a number of $30 million plus commercial assets in Auckland and Wellington over the last two years with varying degrees of complexity.

“A comprehensive process is required to minimise any fallacies and add rigour to the due diligence process. Jones Lang LaSalle has refined and streamlined the process so that interested parties can enter a dedicated Jones Lang LaSalle data room and capture all the information they require for the asset. This includes property and market research, valuation reports, photos, zoning, maps, infrastructure, etc. This is not only an important request for our clients, but for the lending community as well - especially for larger quantum assets,” says Hargreaves.

While sources of lending for large quantum property assets reduced after the GFC and finance company collapse, easier access to senior and junior debt is resurfacing. According to the latest RBNZ statistics, registered-bank lending for property and business services has increased by 3% from May 2010 to May 2011.

Hargreaves notes that while the banks are back, it will only be for the right asset at the right terms with the right investor.
“It’s back to the basics for many asset purchases and the ability of an investor to access debt is definitely more achievable than in 2010. However, the lending community while more active is still cautious and needs to be suitably comfortable that they won’t get left in the lurch as many were recently. This is whether the purchase is of a small or large quantum value, with only the best of the best transacting” says Hargreaves.

This is reflected in the latest asset sales transaction volumes of all commercial property classes including office, industrial, retail, retirement, hotels and accommodation over $5million.  In the first half of 2011, the total value reached just under half a billion dollars, slightly under the results recorded from the same period in 2010, according to Jones Lang LaSalle research.

Chris Dibble, head of research notes that the retail sector has been a large contributor to the total value of sales in New Zealand over the last 18 months.
“Over $660 million of large quantum retail assets have sold since the beginning of 2010, representing around a third of the total asset sales above $5 million across all sectors. If you just look at the traditional commercial office, retail and industrial sectors it’s almost 40%,” says Dibble.
“Despite the subdued spending conditions, the latest Statistics NZ data shows a climb in core retail spending by 0.9% for the June 2011 quarter. This is the biggest increase in sales volumes since the December 2009 quarter and is a relief to many retailers and landlords alike, he says.”
Investors are also confident that this is the sign of future trends with a growing focus on retail property, especially for Prime premises.

Hargreaves notes, however, that the critical component of ‘Prime’ property has been revisited as investors remind themselves that there’s more to Prime than just an asset’s physical characteristics.

“Retail premises require not only strong physical characteristics and buoyant occupiers, but strong locational characteristics such as supporting catchment areas and convenient access. After all, the building can be upgraded and the tenant changed, but you can’t change its location and catchment area,” says Hargreaves.

“The Aotea Square underwent a significant transformation into a world-class public open space. It’s now time for the Metro Centre to also undergo such a transformation and once again provide the Auckland CBD community with a truly world-class entertainment and retail hub.”