Rare university offering for educated investors

The first fully university tenanted Auckland CBD commercial property to be brought to the open market in recent years is one of the trophy listings in Bayleys’ latest Total Property portfolio.

The nine-level Auckland University of Technology (AUT) WY Building, located on a 1,721 sqm corner site at 120 Mayoral Drive, offers its next owner significant value upside possibilities both in the short and longer term says Bayleys broker Peta Laery who is marketing the property with Ryan Johnson and Brad Ross.

“A unique feature of this offering is that while the building is fully occupied by one tenant – AUT- there are seven different leases in place across various floors which provide an attractive diversified lease expiry profile for an investor looking for an add value angle,” says Laery. “’Earlier this year, AUT exercised rights of renewals for Level 1 and part of Level 4. Further expiries, with rights of renewal, are spread over the next six years offering a purchaser considerable short-term rental upside potential from these renewals as well as regular rent reviews.”

The property is currently generating net annual rental income of $1.491 million plus GST. The average rental is $242 per sqm for the office space and $70 a week for carparks.

AUT’s Law School occupies the top two floors with other business-related AUT faculties tenanting the remainder of the building which comprises seven levels of office space with a net lettable area of 4,947 sqm and two levels of basement car parking for up to 71 vehicles. One of the basement levels is currently used by the engineering faculty as a mechanical workshop area.

Built in 1988, and constructed of a combination of concrete and steel, the building has an A+ seismic rating, with an Initial Evaluation Procedure (IEP) assessment of 145 per cent of New Building Standard. Laery says the property has been well maintained with an active management and capital expenditure programme. Air conditioning controls were replaced in 2016, the building’s two passenger lifts underwent a comprehensive modernisation in 2018/2019 and its two cooling towers are currently being replaced.

Brad Ross says the property also has long-term development potential. He says the location’s Business City Centre zoning’s maximum floor area ratio of 10 sqm of building per one sqm of land, up to a height of 50 metres, means approximately 3,500 sqm of further gross floor area could be accommodated on the site, subject to council approval.

The City Centre zoning allows the highest density of development under the Auckland Unitary Plan and a wide range of commercial and residential activities. “One of the possible development options longer term could be to convert the property to student accommodation to cater for what is expected to be continuing growing numbers of students attending New Zealand’s two largest universities – Auckland University and AUT- which are located next to each other in the CBD’s education precinct,’ Ross says .

“By the same token there is also likely to be continuing demand for lecture, tutorial and administrative accommodation so there are a variety of options to consider in terms of adding long-term value to the property.”

Ross says 120 Mayoral Drive is strategically positioned in the heart of AUT’s CBD campus, surrounded by a cluster of other AUT occupied buildings. Impending final lease expiries on around 13,500sqm of commercial space in some of these neighbouring buildings is expected to provide enduring occupier demand for the WY Building, he says.

“It is situated in a high profile corner location at the intersection of Mayoral Drive and Wakefield St, with further frontage to Airedale St which provides additional vehicle access to the basement parking. The site receives exposure to in excess of 18,500 vehicles daily and is particularly well serviced by public transport, with bus routes along Mayoral Drive.”

Ryan Johnson, Bayleys’ national commercial and industrial director, says the strength of the location is further enhanced by its proximity to the under construction Aotea City Rail Link Station which is 350 metres or a five-minute walk away. “The station’s opening will be of considerable benefit to the CBD’s education and entertainment precinct and is a significant catalyst for approximately $1.6 billion of additional development projects currently underway or planned within a 500m radius of 120 Mayoral Drive. This encompasses a 21-level mixed use development above the Aotea Train Station plus further education, residential, hotel and office building.”

The property is for sale by deadline private treaty closing 4pm, Thursday June 24, unless sold prior. Johnson says university tenanted assets within university campuses are seldom offered for sale on the property market.

“New Zealand’s tertiary education sector presents highly compelling, resilient investment fundamentals, being a $4 billion industry responsible for the education of more than 181,000 students and employing 22,000 staff, in addition to receiving $2.8 billion of annual Government funding.”

AUT had its beginnings as a night school for 137 students in 1895, then was a day school, technical institute and polytechnic before becoming a university in 2000 with just under 12,000 equivalent full-time students. That number has grown to over 29,000 students spread across three campuses on the North Shore and at Manukau as well in the CBD. It is now New Zealand’s second largest university and employs 4,500 staff.