Precinct Properties says bulk of tenants back in their offices despite debates over flexible working

Thursday, 25 February 2021

Precinct Properties chief executive Scott Pritchard says its office buildings are 98 per cent leased with on floor occupancy about 85 per cent to 90 per cent.

Leading inner city office developer and owner Precinct Properties says the bulk of tenants have returned to their offices as it announced a tripling of its profit to $167.9 million for the half-year.

The $167.9m is 213 per cent higher than the $53.6m in the six months to December 31, 2019 and was boosted by higher gains on the value of its office buildings than in the six months to December 2019.

Precinct chief executive Scott Pritchard said while debate remained about workplace strategies and more people working from home, almost all of Precinct’s clients were back working from their premises before the three-day February 15 lockdown.

Noticeably some tenants had increased their allowance for flexible working, and it varied depending on the sector or industry. While its portfolio was 98 per cent leased, on floor occupancy was between 85 per cent and 90 per cent.

The original illustration of One Queen Street, in the foreground, where Precinct Properties is revising its plans to redevelop the building into a hotel and offices.

* Rebound in property values for leading inner city property developer Precinct Properties

* Precinct Properties slashes value of Commercial Bay

The company benefited from an uplift in operating income following completion of developments, like the $1 billion Commercial Bay office and retail development in 2020, and tax benefits from the depreciation on structure and spending on contamination.

While a strong result, Covid had cost about $6m in the first half for retailer support, delayed occupation of Commercial Bay and the effects from Covid on income at Generator and Commercial Bay Hospitality (CBHL).

Precinct opened the $1 billion Commercial Bay office and retail development on Auckland’s waterfront mid 2020.

Commercial Bay's retail precinct was probably performing 15 per cent to 20 per cent lower than what had been expected pre-Covid.

The company was now revising its development plans for 1 Queen Street for a smaller hotel than previously planned.

It placed the development on hold in May last year following the closing of the borders and was reassessing its composition.

The current revised scheme would be a hotel with 139 rooms instead of 244 originally proposed, ground floor retail integrated into Commercial Bay, 3 levels of shared workspace, 2 levels of private office suites, 7 levels of premium grade office and a rooftop bar

Detailed design and other work streams were still to be finalised.

A decision was expected to be made on the development within the next 6 months.

Its portfolio of office buildings in the inner cities of Auckland and Wellington rose by $148m.5m, 5.1 per cent, in the six months to December 31, 2020 to a total value of $3.25b. That compares with a $66.3m rise in its portfolio value in the 2019 half-year.

Auckland assets increased about 4 per cent in the half-year and Wellington about 8 per cent. Progress on the development of two buildings in Wellington at Bowen Campus and rental growth in Wellington contributed to the rise in property values.

Shared offices and co-working business Generator’s income fell to $3.1m in the half-year from $4.8m in the previous half.

Membership revenue and occupancy remained stable at Generator offices for the first half, but events revenue was hit by Covid-19, however it was recovering faster than anticipated after the August 2020 lockdown. There was strong demand at the new meeting suites at Commercial Bay.

“While market conditions remain challenging in 2021, we continue to see demand for high quality, city centre office space with surrounding amenity.”

“With a further 11,300 square metres of leasing transactions completed in the period, the portfolio continues to attract businesses who want to occupy premium assets and be in highly attractive locations,” Pritchard said.

The divided for the second quarter would be 1.625 cents a share. The forecast full-year dividend remained 6.5c a share, 3.2 per cent higher than the previous year.