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Case Study

Transaction update - 64 Apollo Drive

The recent sale of an industrial premise on Auckland’s North Shore for a 7% yield is a prime example that investors are still actively pursuing quality properties and are willing to pay required premiums.

64 Apollo Drive, a 1,115 sqm prime quality industrial premise has just sold for $2.58 million, representing a 7% yield. The property has a remaining lease term of three years, with a net rental of $181,000 from Lingerie Brands Limited, a prominent lingerie importer, wholesaler and retail business.

David Mayhew and Shoneet Chand from Jones Lang LaSalle have just negotiated the deal. They have indicated that the family trust was looking for a premium industrial investment in a quality location, with a solid covenant. 64 Apollo Drive ticked all the boxes.

Apollo Drive is recognised as one of the most desirable addresses on the North Shore, situated in the Interplex Business Park and governed by the Interplex Association.

The Association was initiated to protect the use and integrity of developments in the subdivision, with the view of protecting property values over the long term. This has been achieved through the covenants in place to ensure that buildings within their boundaries are of the highest quality, while also restricting specific types of heavy industrial uses. Examples of this are; low site coverage, high quality building materials and specific landscaping requirements.

64 Apollo Drive was designed and built by Terry Randell who is a respected Auckland architect and has been involved within the Interplex association since conception.

Mr. Randell described 64 Apollo Drive as one of the most highly specified buildings on the North Shore, which is evident from fully tiled bathrooms to the full height aluminum door frames. The warehouse walls are also painted full height and the floors coated in Aquron 1000, which eliminates concrete dust allowing for a cleaner operation.

Total floor area for the property is 1,115 sqm with a very desirable 72:28 warehouse to office ratio. This configuration March 2010 is very rare in the area as most have a warehouse to office ratio similar to 60:40. This is due to developers looking to maximise the return on land values, which have increased significantly in the North Shore area over the last decade. However, high office ratios are generally less functional for traditional industrial/distribution. This makes 64 Apollo drive an attractive option for investors.

Jones Lang LaSalle research shows that prime yields are generally trading between 8% and 9.75% for industrial premises at the moment. However, it is expected that both prime and secondary industrial yields are likely to start firming at the upper range over the second half of 2010 as investors become more confident in New Zealand’s economic growth. This is already materialising, with the 4Q09 GDP results indicating a 0.8% increase translating confidence into action.

While the sale of 64 Apollo Drive is well below recent investment yield trends, there are a few key reasons for such a firm yield to be achieved. Firstly, the location and quality of the building with the Interplex covenants in place protecting its value. Secondly, the passive investment style purchase of a safe and stable income for the family trust. As the investor noted, a 7% return is higher than currently investing it with the bank.

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