Off-market sale of Wiri steel facility shows strength of industrial property

02 November 2018

The sale of a large industrial property in Wiri, Auckland, to listed entity Property for Industry (PFI) last week is further evidence of the sector’s ongoing strength.

Simon Andrews, Senior Negotiator of Savills Industrial Sales & Leasing, conducted the $12.3 million sale off-market, as part of the company’s mandate to source suitable acquisition opportunities for PFI.

Located at 12 Hautu Drive, the property includes a 5000m2 warehouse and office building on a large 10,946m² site in the popular industrial precinct of Wiri.

Strong investment attributes including location, quality construction, tenant and excellent lease terms made it a very attractive buying opportunity, Andrews says.

“This property’s good location, build quality, long lease and income growth make it exactly the type of industrial investment property many buyers are looking for, but are having difficulty accessing due to the short supply of properties on the market.”

With industrial property in such high demand, it is becoming more difficult for investors to source an adequate flow of new investment opportunities in the key Auckland industrial precincts.

This means that in order to access buying opportunities, investors are increasingly looking to buy off-market, approaching landlords who may not be actively trying to sell their properties, says Andrews.

“With investment opportunities so scarce, when working with active investors such as listed property groups who are always looking to add to their portfolios, it’s a matter of going behind the scenes to unlock investments and introduce opportunities before others can access them.”

12 Hautu Drive was not on the market for sale but, having identified that it was likely to suit PFI’s requirements, Savills approached the landlord on the company’s behalf.

“The opportunity to sell into an extremely high demand market to a motivated buyer was enough to persuade the owner, who had held the property for a number of years,” Andrews says.

One of the key attractions of the property for PFI was the tenant, Kiwi Steel, which has also leased PFI’s new 2500m2 warehouse development on Cavendish Drive in Manukau.

“Kiwi Steel is already known to PFI through its lease to KS Holdings, Kiwi Steel’s parent company, in Cavendish Drive. With a familiar tenant, a long-term lease extending until January 2030 and fixed rental growth of three percent a year, this proved to be ideal investment stock for PFI,” says Andrews.

Despite the excellent performance of industrial property throughout Auckland, it is still very important to focus on the fundamental attributes of high quality investments that will last through market cycles, he says. This includes factors such as location and build quality.

“The industrial market has continued to hold at high levels for several years now and while we’re not anticipating an imminent correction, at some stage we will reach the top of the cycle. When that happens, it will be the owners who are holding the most adaptable, well-built and easy to re-lease properties, in prominent locations close to motorways, who will fare the best.”

Wiri has emerged as one of Auckland’s pre-eminent industrial locations in recent years and is now home to some of New Zealand’s best-known businesses. The opening of the Waterview Connection has further benefited businesses operating in Wiri, providing an alternative route through Auckland which feeds directly into and out of Wiri, Andrews says.

The building at 12 Hautu Drive is constructed to A Grade seismic standard and can accommodate a variety of heavy industrial users, featuring gantry cranes in the warehouse area.

Kiwi Steel’s lease generates annual net rental of $645,611 plus gst and opex, representing an investment yield of 5.25 percent based on the sale price.

“Yields of below six percent are now very common in the Auckland industrial property market, which is further evidence of the current strong demand trend which has left investment properties in very short supply,” says Andrews.

Part of the attraction of industrial property to investors is the relatively lower cost of owning and maintaining the buildings, as they are often less complex and technical in nature than an office building, for example. Industrial tenants are also typically less likely to move premises often, providing a good level of lease security.

In addition, industrial properties typically include a significant land holding, which is attractive at the moment to investors seeking the potential for capital growth given the scarcity of development land in Auckland, Andrews says.

Simon Woodhams, General Manager of PFI, said the acquisition increases the company’s presence in Wiri.

The area is now a key precinct for PFI, which currently owns eight properties in the wider Wiri/Manukau area, representing more than 10% of its portfolio.

 
 

Key Contacts

Simon Andrews

Simon Andrews

Senior Negotiator
Industrial Sales & Leasing

Savills Auckland

+64 (0) 9 307 4629