Commercial property

Commercial real estate developer expects increased sales of office buildings

A commercial property developer expects more office buildings to sell in the coming months as businesses struggle to rent space and cope with rising construction costs.

The office market has been affected by the pandemic.
Photo: 123RF

Listed property company, Asset Plus, recently sold an office building in central Auckland for $65 million, citing rental issues and difficulties financing development.

The sale represents a gain of approximately 10% on the purchase price.

Company director Mark Francis said market conditions had “changed quite a bit” since he acquired the asset in 2019.

He said he needed equity to undertake the redevelopment of the building, but it was not good business practice to try to raise capital when the Asset Plus share price was at 40% reduction in relation to net tangible assets per share or NTA.

NTA is the value of all physical assets of a company divided by the number of shares outstanding. Calculation allows a company to focus on its physical assets in isolation and is often used when trying to access financing.

In addition to funding difficulties, Francis said the office market has been affected by the pandemic.

More people were working from home and development costs were rising due to skills shortages and supply chain disruptions, he said.

The combination of these factors, plus rising interest rates, has been felt across the sector.

“There are headwinds everywhere you look right now, so I think it will force a few people’s hand and I think you’ll see more stocks coming into the market.”

Francis said the company was still a big proponent of office space, but it made sense to sell the asset to free up cash.

He said there was always a demand for offices, but what people wanted from those spaces was changing.

“I think companies and employees expect a lot more comfort in what’s available to them in their work environment.”

This could include access to gym facilities, mental health workers and yoga spaces, he said.

Divestiture of the building in central Auckland would require shareholder approval.

If supported, $20 million of the proceeds would go towards debt repayment.

The sale was to “substantial New Zealand private investors” with the settlement date in December 2023. The buyer had the right to extend the settlement date by a year, but if exercised, the price of purchase would increase to $68 million.