Apr 24 2010
Wellington Office Space Shortage
New Zealand’s largest office space investor sees a stark contrast in our two largest cities, with a shortage of prime space in Wellington as its new Auckland building lies almost empty.
AMP NZ Office Trust, which owns $1.3 billion in prime office space in Wellington and Auckland, reported a 12 per cent rise in distributable profits to $47 million for the nine months to March 31 yesterday.
Chief executive Rob Lang said despite the backdrop of a weak economy, the trust’s occupancy level in the capital was at 98.6 per cent, with demand from businesses for more.
“There is private sector demand that, at present, we are unable to cater for, such is the level of that demand.”
While there had be a fall in demand from the public sector as government spending was cut, Mr Lang said its only exposure to Wellington was prime space. Its buildings tended to house department headquarters, many of which have expanded recently as functions are centralised. Earlier this month the trust announced that the Department of Corrections had agreed to lease about 11,500 square metres of space in its Mayfair House building, the second-largest lease in its 12-year history.
Mr Lang said its other tenants included the headquarters of the Treasury and the Ministry of Health, and spending cuts were expected to hit other, smaller secondary locations.
“If there is retrenchment in health, then we would expect to see [the Ministry of] Health consolidate in their headquarters.”
Auckland, meanwhile, remained flat, with its new building at 21 Queen Street, completed last September, almost 90 per cent unoccupied. Because of Queen Street, which had its book value cut by $40 million last year, the trust’s occupancy in Auckland is around 80 per cent.
Mr Lang insisted vacancy was a significant problem across the Auckland market and denied the trust had been unrealistic about its expectations for rent at Queen Street.
“We’re being very commercial and happy to meet the market,” he said.
While the level of inquiry at the building had increased, prospective tenants appeared to be using weakness in the market as leverage to gain better terms with existing landlords.
“The property attracts very strong interest in the Auckland market but the deal flow and execution in Auckland is very thin.”
The trust was prepared to be “very flexible” to attract tenants to join real estate company CB Richard Ellis, the Queen Street building’s sole occupant.
“We’ll do the deals in the best interests of the investors in the project, and we’re very flexible in how we package those deals. Once you do have one or two deals it is true that it does create momentum.”
// After writing down the value of its portfolio by $63m in the second half of 2009, the trust made no further change to the book value of its assets this year. Lang predicted in December that the worst was over for asset impairments.
The trust said it was paying a net third-quarter net dividend of 1.475 cents a unit. Last year the trust raised $201m through a rights issue to pay down debt.
Its unit price rose 1c to 75c yesterday.
