ANZO secures first office tenant for 21 Queen St

October 16, 2009

AMP NZ Office Trust (ANZO), New Zealand’s largest listed investor in prime commercial office property, has announced the first office tenant for its newly-completed 21 Queen St development in Auckland – a key step in turning around the property’s investment performance.

ANZO chief executive Robert Lang said practical completion of the two-and-a-half year project was achieved slightly ahead of time on September 25. However, while the project has been in progress, the global financial crisis has had a significant effect on tenant demand and decision-making and asset values.

Real estate services company CB Richard Ellis (CBRE) has signed a nine-year lease for all of Level 14 (910 sqm) of 21 Queen St. Ground-floor anchor retail tenant Dick Smith Electronics has been open since July, and CBRE will relocate to the building in January 2010. Mr Lang said ANZO remains in advanced negotiations with additional high-profile corporates with an interest in the balance of the space.

“Reaching this point with this level of vacancy was never our intention and is a disappointment, particularly given ANZO’s very strong track record in developments,” said Mr Lang. “However, securing the first tenant is always an important milestone in projects of this nature. CBRE’s commitment and the fact that 21 Queen St is also currently shortlisted by other prospective tenants is a vote of confidence in the building, at a time when the leasing market is showing signs of picking up.

“Our job now is to follow through on that leasing potential, recover the lost value and cement 21 Queen St as one of New Zealand’s market-leading buildings.”

The building has been awarded a 5-Star Green Star NZ Certified Rating (score 60-74) for environmental sustainability, signifying “New Zealand Excellence'” under the New Zealand Green Star system.

CBRE senior managing director Richard Horne said the attractions of 21 Queen St included the ability for CBRE to exclusively occupy an entire floor. The building’s faithfulness to environmental sustainability was another advantage for CBRE, which is globally working towards carbon neutrality.

Mr Lang noted that CBRE had been an ANZO tenant for more than 12 years, first in the ANZ Centre, then in the PricewaterhouseCoopers Tower and now in 21 Queen St. Providing attractive, long-term solutions as tenant requirements evolved over the years was a service ANZO worked hard to provide to all its tenants.

CBRE’s move from the PricewaterhouseCoopers Tower would also provide opportunities for backfilling and ANZO was already fielding enquiries for the space that will become available in early 2010.

Practical completion of 21 Queen St has also come with the requirement, in accordance with accounting rules, to revalue the property. This has resulted in a valuation of $66.5 million, compared with $71 million as at 30 June 2009 and materially below the expected final cost of $106 million.

Independent valuers Colliers International have attributed the reduction over the three months to further weakness in market conditions, which has seen the market capitalisation rate softened by approximately 10 basis points to 8.1 percent, along with a further decline in market rents and the property’s largely-vacant status. Mr Lang reiterated that the value is expected to improve as further office tenants are secured. However, an unrealised reduction in the value of the project will be reflected in ANZO’s financial result for the first quarter of the 2010 financial year, which is scheduled to be announced on October 22.

Completion of the redevelopment project means that the property is now considered part of ANZO’s investment portfolio, and this has also had an impact on the overall portfolio occupancy rate. 21 Queen St accounts for about 5.4 percent of ANZO’s total lettable area.

Portfolio occupancy as at September 30, 2009 was 90 percent, down from 97.2 percent at June 30, reflecting the  21 Queen St vacancy and the expiry of IAG’s lease at 151 Queen St. Excluding 21 Queen St, portfolio occupancy was 94.9 percent.

ANZO is managed by AMP Haumi Management Limited.

About ANZO
ANZO is New Zealand’s largest listed investor in prime and A-grade commercial office property. A unit trust listed on the New Zealand Exchange, ANZO currently owns 15 New Zealand office buildings with a total gross value of more than $1.3 billion – Auckland’s PricewaterhouseCoopers Tower, ANZ Centre, 151 Queen Street, AMP Centre and 21 Queen Street; and Wellington’s State Insurance Tower, Vodafone on the Quay, HP Tower, 125 The Terrace, No. 1 and 3 The Terrace, Pastoral House, Mayfair House, AXA Centre, Deloitte House and 29 Willis Street (Chews Lane).