Posted on May 16, 2018
The problem: Significant numbers of industrial buildings were built in the 1970’s and 1980’s. Since that time the way in which many buildings are used has changed – but the buildings have not.
In many cases minimal maintenance has been carried out over the years.
The solution: Expedio is able to re-purpose older and unloved buildings for contemporary needs.
The challenge: It is not as simple as a coat of paint. There are multiple challenges involved in every project. And often any potential problems are not uncovered until the refurbishment is well underway.
The first task is to determine whether a building can be re-purposed – economically. A major impediment to the process is often space. Older buildings were generally permitted to be built with a much higher site coverage ratio than is allowable now. Which means less on-site parking and truck maneuvering space . There are times when the site coverage and lack of access mean that it simply isn’t worth refurbishing a building. But more often it means being creative about the type of tenant and the way the building is re- purposed. With increased traffic congestion, and particularly increased on-street parking, the off street parking component of a property may not necessarily add value. But it certainly will make it easier to lease or sell, particularly when the market changes direction. It’s a question without an obvious answer as to why in many well established industrial streets, where the number and size of buildings has not changed over the years, and the number of workers will not have markedly changed, why they are now constantly jam-packed with cars, when even five years ago there were relatively few cars on the street.
Price is a key element. If the cost of the building, plus the cost to refurb, then mean the rental is excessive, obviously the project won’t work. And often vendors are comparing prices for their property in “original” condition, with a building which has been totally refreshed and re-purposed.
It’s unfortunate that far too often, especially on smaller buildings, maintenance has been neglected, or non-existent. Much as we dislike many aspects of the body corporate structure with regard to industrial buildings, with the right professional manager, owners are reminded that they need to have a plan in place to maintain and ultimately replace aspects of their investment. Whilst there are various “rules of thumb” regarding how long a roof should last, or a roller door should last, routine maintenance will usually prolong the lifespan.
Very often, the older a building is, the more office it has. The days of a battery of desks, piles of paper, and clerks with hand powered adding machines are long gone. Computerisation has reduced the personnel needed for most accounting and office functions. The advent of cloud computing has taken this depopulation of offices to another level, as much of the accounting function can now be done remotely, whether by a panelbeater’s wife from their spare bedroom, or a corporate outsourcing to Asia. Whilst there are some tenants and owner-occupiers who have a need for high office ratios, generally the challenge is to find a way in which to a building can be re-configured such that the office component represents less than 20% of the total floor area, and with larger buildings, even less.
The reality is that nothing lasts forever. With many buildings in our popular industrial precincts of East Tamaki and Wiri now approaching 50 years old, and in Penrose and Onehunga even older, it is inevitable that internal services such as plumbing and wiring will have outlived their useful lives, and need replacing – and at the same time updating.
In many cases these services still work (after a fashion) but stricter oversight from insurance companies is forcing the upgrading of wiring and switchboards, and splits and leaks in the various plastic plumbing systems which were commonly installed in the 70’s and 80’s are causing damage far in excess of the cost of the plumbing repair.
Ultimately we come back to a very simple equation.If a building in need of work is not priced correctly, then spending money to bring it up to an acceptable standard will over-capitalise. Just as in the current market there is a compression of yields between A, B and C grade properties, there is also a compression of pricing between properties that need work, and those that don’t.
Both types of price compression can be explained very simply by the shortage of stock. But it still often does not add up , and inevitably when the market corrects, buyers who have over-paid for B or C grade investments, or properties that need work will face an awakening.
