Tenants keen, but will the investors be?
August 1st, 2012 at 10:00 am by David FarrarThe Press reports:
Christchurch businesses forced out of the central city after the February 2011 earthquake are queuing up to return.
Several major city tenants, mostly in the financial and legal sectors, yesterday eased fears it would be difficult to entice office workers back from suburban business hubs.
Law firm Cavell Leitch, which lost its office in Clarendon Tower, said on Monday it would shift its a 120-strong work force from Burnside when new office space had been secured.
Anderson Lloyd Lawyers relocated to Birmingham Dr from Clarendon Tower, but chief executive Richard Greenaway said the firm intended to move back to the central city “one day”.
“We are working on identifying possible sites and buildings now that the central city blueprint has been announced,” he said.
SBS Bank Canterbury area manager Matthew Mark said his company’s pledge to the central city was “stronger than ever”.
As I blogged after my trip down there, it was clear that many former tenants were keen to return. The big unknown is how much money are property investors willing to spend on constructing buildings in the new CBD.
The plan for the CBD is exciting, and if it occurs will make for a great city centre. But the cost of construction is greater now per square metre due to tougher earthquake code requirements, and hence will sometimes exceed what insurance will cover. The height limits also make buildings more expensive per square metre.
There is a possibility that even with tenants keen to return, that the costs may end up prohibitive. But the plan unveiled will at least allow property owners to now work out those costs and make decisions.
Related posts:
- Wellington office rents
- Auckland Office available
- Home ownership for state house tenants
- The market at work
August 1st, 2012 at 10:47 am
Even before the earthquake Chch people are “patriotic” and proud of their hometown in a way you can’t quite imagine if you’ve never lived there. I guess it remains to be seen whether that extends to property investors too…?
It will be interesting to see if any developers decide to take a punt and build buildings, or if it’s all going to be occupier/owner driven construction…
Vote:August 1st, 2012 at 10:59 am
If the existing investors aren’t prepared to invest then someone will, if there’s demand for office space, someone needs to supply it, and whoever does will probably make a killing off the rental returns.
It seems to me that a lot of the current investors are big mouthing about the problems they face, and hoping for a government bailout. Which should never happen, they took a risk on investing in the first place, they may have made a loss on that investment, but that’s the past, they now have 2 choices, invest in CHCH, or leave and take their money elsewhere. It’s as simple as that. And if they leave someone else will fill their spot.
Often the best time to invest in somewhere is the bottom of a cycle, and know that your returns will go upwards from there. Especially since the tenants are keen to return.
My advice to investors, buy as much land in CHCH as you can, especially close to the justice precinct, and it’ll fill up in no time with law firms.
Vote:August 1st, 2012 at 10:59 am
The biggest concern would be the ability to get Building Consent within an acceptable cost relative to say Auckland, Tauranga or Hamilton in “perceived” lesser earthquake areas.
Vote:All new constructions will require severe earthquake construction, and that along with many different Council consents could well be realistically prohibitive.
Then the question is what will the lease/rent be costed at to give an acceptable return on capital.
Whilst am sympathetic am not sure of the economics.
August 1st, 2012 at 11:52 am
Insurance is the key. If the Insurance companies want an arm and a leg for cover then that will kill off the tennants. Insurance is passed along as part of OPEX and adds to total cost along with the rents and rates etc. I can see the Govt leaning on the insurance companies to get cheap rates now but I think its likley that those rates will climb steeply once the buildings are in place and the owners have no choice. When the prices go up the tennats will leave in droves and other developers will have had time to build to take those tennats elsewhere.
Vote:If I had a big insurance chq in my hand I wouldnt be rebuilding anywhere slightly risky, the next big shake may break the insurance company your covered with and leave you with seven tenths of fuck all.
August 1st, 2012 at 3:04 pm
Developers are quoting 400 a sqm for the CBD which can be twice what tenants pay in the business parks. The lawyers and accountants will head back and their clients rates will reflect that, other professional services will follow suit.
Vote:One does need to bear in mind that there isn’t going to be a huge amount of floor space available with the height and boundary limitations. I don’t think there is much issue with courts, police station and all the other government departments come back in it will fill up pretty quick.
August 1st, 2012 at 9:01 pm
Nothing, but nothing will happen unless insurance companies are willing to extend cover, and that won’t happen anytime soon. That only leaves you and I (the taxpayer), to pick up the insurance cover. It doesen’t look good.
Vote:August 2nd, 2012 at 11:02 am
I suspect the biggest impediment will be availability and affordability of insurance cover that is acceptable to lending institutions. If this part of the equation cannot be solved then this is going to be a very long road back.
Vote: