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Case Study

10-12 Scotia Place, Auckland

Positive signs are emerging in the strata office market as investors resurface and actively seek out add-value potential in secondary premises.

By way of example, after two and a half years on the market, Jones Lang LaSalle’s Ian Hall has recently negotiated the sale of five levels of strata office space at 10-12 Scotia Place.

The subject property comprising 1,362 sqm of contiguous office floor space and 23 car parks sold for $1.9 million with vacant possession to a private high-net-worth investor.

The building is situated towards the southern end of Scotia Place backing onto Myers Park and less than 100m from Queen Street. The immediate area reflects a mix of uses including Accommodation, Educational and Office, with a short walk to Queen Street offering an array of retail amenities.

Demand for secondary office stock in Auckland’s CBD has decreased significantly after the global financial crisis. Investors’ risk premium increased for stock that couldn’t confidently and safely future-proof cash flow.

However, as can be seen in the chart below, prime and secondary office space as monitored by Jones Lang LaSalle research is currently at similar levels. This is a result of a significant increase in vacancy in the prime sector, with a majority of the space contained within a few high-profile CBD buildings such as 21 and 125 Queen Street.

The secondary vacancy rate in Auckland’s CBD has increased to 13%, after reaching a two-decade low of 9% in 4Q07.

It is expected that a high level of demand for secondary premises will reemerge by the end of 2012 after a sustained period of economic growth. Actual annual GDP is expected to average 2.5% from March 2010 to March 2014, according to NZIER. The latest 4Q09 GDP results indicate that this is well on track, with a 0.8% increase recorded - the highest since 4Q07.

Secondary stock represents a value-add play for discerning buyers in our market who have the ability to unlock the underlying potential. The new high-net-worth owner is already aware of the potential, with add-value options conceptualized.

As a result, Jones Lang LaSalle has been asked to sell-down some of the individual strata titles that are surplus to the new owner’s requirements.

While levels 4 and 5 will more than likely require upgrades dependent on the purchaser’s use, levels 6, 7 and 8 are immediately ready for occupation.

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