Mitchell Mackersy and MHP Autumn Newsletter 2019

March 25, 2019

Welcome to our Autumn newsletter. We wish you a happy and healthy 2019.

Mitchell Mackersy and MHP have had a busy start to the year with two significant syndicates added to our commercial property portfolio – Willis St Limited Partnership and MM Group 3 Limited.

Willis St Limited Partnership’s A grade 5 green-star office building settled early this month. Spark Central is located in Wellington’s busy CBD and is our biggest project to date. It is a high quality office asset merging heritage, architecture, sky bridges and futuristic facades with glass elevators and commanding design concepts. Major tenants include Spark, BNZ and AMP Capital.

MM Group 3 Limited consists of three prime assets – an A grade seismic rated office building in Christchurch and two industrial properties in Tauranga. The Christchurch office building is anchored by two strong tenants (Opus and Chorus) and sits in a prime location beside Hagley Park. In Tauranga, one of the industrial buildings is a brand new warehouse facility in the growing Tauriko region tenanted by NZL Group. The other building is an existing well-built storage facility in close proximity to the Port of Tauranga.

We have had great feedback from our investor group on these two projects and look forward to offering similar assets in the future.

In this issue we hear from Ron Mackersy on the changing face of investments returns, and Dale Robertson shares the latest MHP news. We also discuss emergency procedures relating to Health and Safety in commercial properties, report on Colliers International’s update on flexible workspace innovation, and provide an update on the current New Zealand Economic and commercial property markets.

We appreciate your feedback so please feel free to get in touch with your comments and thoughts.

Warm regards,
from the Mitchell Mackersy and MHP team

Comments from Ron Mackersy

We haven’t been here for many years – low interest rates and low cap rates. We have become used to geared returns of 8% + but this is now becoming less normal in stand alone commercial investments. It is now necessary to look at mixed location and types, or extremely expensive purchases (such as Spark Central, Wellington) to maintain the 8% + growth returns. We have continued to do this successfully over the past 12 months.

It is now time to look more to the provinces for better returns. This requires more research as to the strength of the tenant, population trends and local employment opportunities. Queenstown growth, for example, is almost solely based on tourism numbers. There is currently local backlash due to the lack of suitable infrastructure and increasing land costs which has resulted in low investment returns. Tauranga continues to have rapid port expansion and is now the largest port in the country in terms of total cargo volume and container throughput. This has lead to increased transport and storage requirements for the extensive import/export sector. The Bay of Plenty received 110 cruise ships this season, up 35% on last season’s 81 ships. Construction in Queenstown and Tauranga has become very expensive, which has resulted in low returns to investors.

We recognise the importance of representation in Tauranga. MHP Property Manager Yvonne Sheppard is settling in well to the office on Cameron Road in Tauranga. Our Syndication Manager, Omea Willows will be joining her in this space from the end of March when her family relocates from Queenstown. We look forward to expanding our presence in this growing market.

We continue to look throughout the country and not necessarily in Auckland, Tauranga, Wellington, Christchurch and Queenstown. Other areas of interest for us include Hawkes Bay, Ashburton and its surrounding hinterland, Dunedin and Invercargill. Dunedin, in particular, is showing signs of population growth with the central city upgrade, tourism and the $1.4 billion new hospital fuelling business and building growth. Tourism is strong with spending up 7.8% to $759 million in the year to September 2018. Cruise ship passenger numbers are up 11% to 180,000 with 119 ships visiting Dunedin this season. The University of Otago continues to grow with its roll expected to reach a six-year high in 2019. The covered Forsyth Barr Stadium continues to attract visitors attending concerts and sporting events.

Also topical at the moment, is the current debate in Capitals Gains Tax. The writer’s view is that it has political and voter support this time. So prepare yourselves for that – a watered down version of the current commentary. We watch this topic with interest.

In summary, we continue to look for mixes of location and business types for new investment opportunities. Investors need to be prepared for lower returns if continuing to stay in traditional high demand areas. Mixing in other geographical locations while remaining committed to our key fundamentals might be the way of the immediate future.

News from Dale Robertson’s desk

The MHP team continues to grow with Richard Griffiths, our new Facilities Management Co-ordinator, joining us this month in the Christchurch office. We have also welcomed Anna De Vries into the Executive Assistant & HR Advisor role in Christchurch while Gabrielle Wethey is on maternity leave. Meanwhile, the Tauranga office is continuing to be busy with our growing management portfolio in the area.

MHP continues to focus on industry best practice. As part of this, we are in the process of updating our standard property management agreement. The changes reflect the ever-changing regulatory environment for commercial property in New Zealand, in particular the Health and Safety at Work Act 2015 and the new Fire and Emergency New Zealand regulations passed in May 2018. The changes are intended to enable better handling of practical matters that commonly arise, for example around tenant fit-outs, routine repairs and maintenance.

Our new flagship office asset, the Spark building on Willis St in Wellington, is now fully bedded in to MHP’s management portfolio. We have partnered with CBRE locally which is looking after the facilities management of the building (overseen by MHP), with MHP taking the lead on lease and tenant management. We are also pleased to have commenced management of two prime warehouse properties in Tauranga (located in Tauriko and Mount Maunganui) both part of the MM Group 3 portfolio.

Finally, annual accounts season is fast approaching. The MHP finance & property management teams and our accountants are preparing for this busy time of year and we aim to deliver accurate accounts to all investors in a timely manner.