Commercial development trio in good heart

There were 43 new cranes reaching skyward, according to the second quarter 2015 Rider Levett Bucknall (RLB) Crane Index, which tracks major construction work around the country via a state-of-the-nation crane count. 

In Bayleys’ latest Total Property magazine, the crane-littered skylines from Auckland to Queenstown are looked at in detail, and three key commercial property developers give their take on the current construction and development environment.

Bayleys’ national director commercial real estate John Church says the air of positivity in the development sector is heartening and reflects confidence in the broader commercial property market.

“In talking to those at the coal face of the industry, it is apparent that despite the challenges around compliance and legislative matters, the sector is showing resilience and growth,” Mr. Church said.

“Although the tightened availability of suitable development land is certainly a handbrake, the savvy identification of potential sites and the partnering with strategic land owners is seeing the cranes return to the skies around the country.”

Family ties
The largest private commercial developer in New Zealand, Mansons TCLM, has developed 600,000sq m of commercial and industrial floor plates in the past 20 years and has a current combined workload value of $1.225 billion including work in progress and projects due to commence this year.

Their pipeline of new builds includes the Fuji Xerox head office in Newmarket, 151 Victoria St, 160 Ponsonby Rd, ‘The Boutique’ apartments adjacent to Victoria Park Market, 10,000sq m of offices at 46 Sale St, a 12,000sq m office block with 240 carparks at 96 St Georges Bay Rd, and proposed premium grade six- green star tower at 1 Mills Lane on the former NZME site. 

According to Mansons director Culum Manson, Auckland is its home base and prime focus.

“This is the market we understand and it is important that we can closely supervise each site to ensure our high expectations of quality are maintained,” he said.

Mr. Manson says there are a myriad of challenges for developers – from legislative and seismic to land availability – and these hurdles are all part of the process. 

He cited the Overseas Investment Office’s approval requirements for offshore investors for non-sensitive transactions over $100 million as being “frustrating.”

“We need these players to finance and acquire the larger projects, as the locals are unable to do so. However, the time it now takes to get deals processed is becoming prohibitive for them.”

Formed in 1988, Willis Bond & Co has always concentrated on the commercial property and private equity markets – focusing on large-scale, mixed-use developments.

Managing director Mark McGuinness says this is a sector the company naturally gravitated to.

“I’m interested in trying to crack this market and seek to become ‘best in class’,” says Mr McGuinness, adding that as part of its 25-year strategy, Willis Bond has concentrated on the Wellington and Auckland markets but would never say “never” to entering other markets. “Getting land – the raw material – is difficult, particularly in Auckland.

“Land is selling at such extreme pricing levels that development is starting to become uneconomic. Some people must have an extra special calculator that comes up with different cost/benefit analyses because I can’t see how some developers are making the dollars stack up.

“But property is cyclical – and time will sort it out.”

Likewise, Mr McGuinness says compliance issues are par for the development course, and says developers “just have to deal with it”. 

Willis Bond does much of its work in private/public partnerships such as working with Wellington City Council on the planned Wellington Convention Centre and with Waterfront Auckland on the Halsey St apartment and boutique retail developments in the Wynyard Quarter.

Mr. McGuinness is enthusiastic about the synergies between his company and those they partner with. “It’s a privilege to work in partnership with them to change precincts and areas,” he says.

“Sure, there are compromises. It’s like a marriage. However, we don’t surrender our base values.”

It is incumbent on all parties within the development process to get sustainability right according to Mr. McGuinness – “we can’t leave it to our children to sort out.”

Tenant-driven development
Havelock North-headquartered Wallace Development Company has largely championed development in the regions and has undertaken large-scale projects in Hawke’s Bay, Manawatu, Wanganui and Gisborne, along with significant work in the Auckland region.

Managing director Jonathan Wallace says the regions are relatively flat in terms of activity and growth – but development is a necessary given.

“Most major companies and government departments have to be represented in the regions, so there is still demand to own quality property,” says Mr. Wallace.

“Our regional development activity is generally tenant-led and usually initiated by our existing relationships. This, combined with our localised knowledge, has allowed us to lead the way in regional areas.

“Increasingly, though, much of our development work is happening in the Auckland area.”

Mr. Wallace says legislation and compliance changes have added significant costs to development but the time now taken by regulatory authorities is having a bigger impact on the sector overall.  

“The development process is always time-sensitive, and the increased time now taken for legislative requirements such as resource consent and building consent is having a major impact.  

“Many development opportunities fail solely due to the protracted resource consent process. 

“The failure is not in the outcome of the consent itself but to the time taken in arriving at that outcome.”

Bayleys’ latest Total Property magazine features extended interviews with these three proactive commercial property developers, along with a snapshot of major developments happening around the country.

Jody Robb writes for Bayleys Real Estate