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NZ New cafes the cream on the coffee

Property Here - Sunday, July 14, 2013

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Secure leases make bite-sized investment properties for those wishing to buy in the sub-$1 million category
Columbus cafe; at 51 London St, Hamilton.
Columbus cafe; at 51 London St, Hamilton.

Two bite-sized investment properties, to be occupied by national brand coffee outlets on new leases, have been placed on the market for sale by auction.

The properties under development at 80 Beaumont St, central Auckland, and at 51 London St, Hamilton, are being marketed for sale by Omri Yahel, Andrew Hiskens and Justin Oliver of Colliers International. They are featured with the agency's latest New Zealand Portfolio magazine and are scheduled to go under the hammer at 11am on July 31 at Colliers auction rooms at 151 Queen St, Auckland.

"Both cafes are due to open in the third quarter of this year once the fit-outs are complete," says Yahel.

Yahel says both cafes are located on the ground floors of separate central city Quest Serviced Apartments developments, which provide a steady customer base in addition to patrons who walk in off the street.

"The Quest apartments provide an ideal captive customer market for the cafes. Most of their guests are business travellers who choose the apartments for their central-city locations, with the cafes providing a convenient coffee or breakfast stop on their way to meetings."

The Auckland property comprises a freehold strata titled ground floor unit in the newly-built Quest complex adjacent to Victoria Park in the central business district.

The 55sq m unit is on mixed-use land and is to be leased to a national cafe operator for eight years, returning $31,920 in net annual rental income.

"With the project nearing completion and the developer moving on, the opportunity is here for an investor to acquire a new, strongly-tenanted property close to the offices of the CBD, Wynyard Quarter and Freemans Bay," Hiskens says.

Built-in rental growth is also provided through rent reviews and the tenant has the right to renew the lease for two further terms of six years each, he says.

In Hamilton, Safari Group has just completed an extensive renovation of the attractive brick character building which houses the Quest complex and the Columbus cafe, with the building rated at 67 per cent of new building standard.

Justin Oliver says the building is registered with the Waikato Historic Places Trust "which has worked in partnership with Quest and Safari Group to restore this impressive historic building to its former glory".

The 179sq m ground floor cafe, on a freehold unit title, is leased to Columbus for a new six-year term with two further rights of renewal of six years each, returning $53,746 in net annual rental income. Income growth is also provided through rent reviews.

"This property provides a rare smaller-scale investment opportunity in the Hamilton CBD," says Oliver. "The high-profile corner site provides exposure to over 20,000 passing vehicles per day, in a great position at the northern end of the city centre."

The property is surrounded by high-profile occupiers, including the Fonterra headquarters and a Les Mills gym. Both properties are positioned in busy CBD locations chosen for their closeness to central city offices.

"Quest's target market is business travellers who generally stay an average of three to four days - longer than typical hotel stays of only two days," Yahel says.

Hiskens says the cafe units are being offered for sale by Safari Group, the developer of the newly-built Quest Beaumont St complex and the renovated Quest Hamilton, which is located in a historic building.

"The combination of great locations, excellent new fitouts and guaranteed custom from apartment guests presents good investment fundamentals for buyers who are considering adding small retail properties to their portfolios."

John Bowring, national auction manager at Colliers International, says these fundamentals, paired with the properties' position in the desirable sub-$1 million price category, means they should be in demand on auction day.

"There is a lot of demand from individual investors for small income-generating commercial properties like these at the moment, given the low borrowing costs available and the comparatively high yields available on commercial property.

"Having a strong tenant in carefully selected locations and with quality design and fitout means these properties constitute ideal investment stock for many buyers."

Hiskens says the strength of the tenancy is emphasised by the Columbus brand which is now a nationwide franchise operation that has become a well-recognised and trusted business.

"Columbus is also credited with kick-starting the 'cafe culture' in Auckland in the mid-90s and has set the standard that other cafes have aspired to achieve since," he says.