New Zealand's richest man opens a new chapter in South Auckland commercial development, is it time for investors to leave the residential market?

Documents submitted to Auckland Council reportedly show that two privately held Fernbrook companies bought industrial land in Wiri and Māngere this winter and plan industrial developments to rapidly increase the value of his land. Their plan is for Fernbrook to build two enormous new warehouses beside the Villa Maria estate near the airport to meet demand from the logistics and storage sectors. The buildings will cover a total of 1.3 hectares, or 13,720 square metres.

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In YIJU New Zealand's earlier report, we described how Mr Hart's holding companies bought these five new industrial properties and benefited from rising land values, adding NZ$500,000,000 to the value of Goodman's portfolio. Through a third party, he said information from real estate agents and property records would provide a 'complete picture' of his company's industrial property interests through this series of transactions.

1) A 28-hectare site at 31 Prices Rd, near Puhinui Rd in the Manukau/Wiri area, priced at NZ$94,000,000.

2) 90 Pavilion Drive in Māngere, sold for NZ$21,000,000. The site is on the edge of the Villa Maria Estate, which itself is set to become a NZ$500,000,000 industrial office park.

3) A 3.8-hectare undeveloped site at 9 Jerry Green St, a cul-de-sac near Roscommon Rd in East Tamaki, reportedly sold for NZ$30,000,000.

4) 68 Cryers Rd, East Tamaki, a developed site in the heart of a busy commercial area, priced at approximately NZ$26,000,000.

5) Located at 11 Greenmount Drive, East Tamaki, sold for NZ$18,200,000.

Photo credit: NZ Herald

Auckland Council application files show development is actively progressing on two of these five sites:

 

#1

90 Pavilion Drive will be the site of a large new warehouse

This site's plans have progressed fastest in the latest round of approvals. Mr Hart's Fernbrook WW applied for and received approval for a major new development here. Earthworks can now proceed for two new warehouses, including offices, loading access and parking. Earthworks and the installation of traffic signs have already begun.

90 Pavilion Drive is the site of a large new warehouse 

Photo credit: NZ Herald

The development plans were submitted by T Plus architects, with Maven Associates listed as handling infrastructure, earthworks, sediment control and retention pond details. The site is on the edge of the Villa Maria estate, which itself is set to become a NZ$500,000,000 industrial office park. Hart's company recently paid NZ$21,000,000 for a 2.5-hectare greenfield development site sold as part of the Villa Maria estate. Zoned Light Industry, the site forms part of two Airpark subdivisions, giving it two additional rights of way. South Auckland property is familiar territory for Hart's businesses, with Fernbrook already active there. For example, Fernbrook Property (No. 2) bought 47 Lady Ruby Drive in East Tamaki in 2016 from interests associated with the Emerald and Chateau Creme Delight ice cream businesses. Plans submitted to the council show the buildings facing Pavilion Drive, with vehicle access through roller doors. One warehouse covers 5200 square metres and the other 8520 square metres. Office units sit along the buildings' edges, with wide vehicle access areas outside.

 

#2

31 Prices Rd, Wiri, This site was previously known as 55 Prices Rd

Hart plans to subdivide and develop this land in future. The council said this would ensure the efficient use of industrial land within Auckland. Hart's Fernbrook property company applied for earthworks involving stripping 64,700 square metres of topsoil and spreading topsoil over 27,610 square metres. Cutting will take place across the 27.5-hectare site. These civil earthworks will enable a subsequent application to develop the land for warehousing and logistics, which are in strong demand. On 17 September, approval was granted for earthworks, stream works, water diversion and water discharge. Planning Focus said the site was in the Puhinui area's Light Industry zone. Fronting Prices Rd, it is currently used for grazing, while surrounding land is mainly used for farming and horticulture. The area's purpose is to enable a transition from rural to urban development, primarily for light industry and airport-related facilities. Planning Focus said the jet fuel pipeline from Wiri to Auckland International Airport runs beneath the site, and approval must be obtained from Refining NZ, First Gas and Wiri Oil Services before any work begins.

Recently, former New Zealand Prime Minister John Key said at the online launch of a new report by policy think tank the NZ Initiative: 'Rapid rises in residential property prices are unsustainable. They cannot and will not continue indefinitely.' Economists have also said: 'The construction sector continues to boom, but the residential property upswing appears to have peaked. The housing market faces significant headwinds, including rising mortgage rates, tighter macroeconomic policy, DTI policy changes, worsening housing unaffordability and a narrowing gap between housing supply and demand as a result of the construction boom.' YIJU New Zealand discussed whether New Zealand faces an oversupply of residential housing in its article on 4 November (click to read).

 

That raises the question: as investors complain about rising costs and risks in residential property investment, is it time to consider commercial property? YIJU New Zealand spoke again with Jenny Zhang, an experienced broker at Macrae Property Brokers.

Jenny Zhang

Chief Operating Officer of Macrae Property Brokers

 

Q1: As an experienced commercial broker, how do you see the development potential of South Auckland commercial property?

Jenny: The council's key development priority for the next 30 years is to extend south from Manukau, eventually linking with Hamilton and Tauranga. Areas spreading out from Manukau, including East Tamaki , Wiri, Māngere and others, are also developing at rocket speed. South Auckland's excellent location, extensive motorway connections, flat terrain and lower development costs make it one of the fastest-growing and most sought-after areas for commercial property. I am therefore very positive about its future potential.

 

Q2: Could you share your view of Auckland's current commercial property market and give examples of projects investors should consider?

Jenny: Certainly. Commercial property falls into two main categories: 1. Retail premises and offices. 2. Storage warehouses. The first category has been hardest hit by the pandemic, with extremely high vacancy rates and the largest price falls. Although the investment risk is very high, this is also a good time to buy at the bottom of the market. The second category, storage warehouses, is the type of South Auckland property New Zealand's richest man, Mr Hart, has invested in, as described above. Rather than suffering from the pandemic, these properties have seen prices soar as it has driven demand, with investment returns far exceeding those of ordinary residential properties. This is because warehouses offer flexible uses: they can store goods or operate as open-plan retail premises, making them highly sought after. In particular, since the pandemic, many retailers have shifted from just-in-time inventory to holding large stocks.

Before buying commercial property, first be clear about your purpose: is it for your own use or as an investment? Different purposes call for different choices. For example, one storage warehouse we are marketing in Manukau has a total site area of approximately 1500 square metres and an internal floor area of about 600 square metres.

Advantages: fee simple freehold title. Flexible uses include storage, processing and retail, and you can occupy part while renting out the rest. It has its own yard, with space for containers and other items. It is easy to lease or sell, with low vacancy rates and high investment returns.

Disadvantages: this is among the most sought-after property types, so prices are slightly higher than for other commercial properties.

Next, let's look at another storage warehouse we are marketing in Papakura, held on a unit title. Its internal floor area is approximately 400 square metres.

Advantages: a freehold interest in a shared site. Suitable for storage or a processing factory, with flexible uses for owner-occupiers or investors. It is cheaper than a warehouse with its own yard, easy to lease or sell, and offers high investment returns.

Disadvantages: a shared driveway, limited parking and no space for containers.

Finally, I would like to discuss the small, entry-level commercial units currently most popular with smaller investors. This type of commercial unit first emerged in a Hobsonville project I completed with a European developer 3 years ago. The concept evolved from ordinary residential townhouses.

Advantages: freehold unit title, a low entry threshold and initial investment, quick capital recovery and high returns. The properties suit small and medium-sized businesses, offer a full range of facilities and accommodate many types of business.

Disadvantages: a shared driveway and limited parking. Storage capacity is small, and handling and transferring goods can be cramped.

Our earlier commercial projects of this type in Hobsonville, Mt Wellington and Takanini sold strongly as soon as they launched. We are currently marketing commercial development land in Pokeno that is very well suited to this type of commercial unit development. We also market a range of commercial properties in central and west Auckland and on the North Shore, and enquiries have recently risen sharply. When Chinese investors interested in commercial property contact me, I provide professional, considered investment analysis tailored to their objectives and needs and the specifics of each property. After all, this sector has plenty of pitfalls and is more complex than ordinary residential investment. YIJU readers with similar interests are welcome to contact me at any time to discuss their next investment project.