Case Study: 220 Queen Street, Auckland – From Challenge to Stabilized Strategy

In May 2023, EMP took on the role of investment manager for 220 Queen Street, a prominent property in Auckland’s Midtown area. The asset, located on a prime corner site next to the Aotea train station, presented several challenges. Despite these obstacles, EMP has swiftly repositioned the property and made significant strides towards its stabilisation.

Asset Summary

Location: Prime corner site in Midtown Auckland, adjacent to the Aotea train station, a highly accessible area with significant foot traffic.
Property Type: Primarily comprises office tenancies, with a focus on sub-200sqm spaces.

Condition: The building was classified as a C-grade office offering, which reflected a deteriorated state in both aesthetics and functionality

Challenges Faced

When EMP took over the management of 220 Queen Street, the property had several issues to address:

Month-to-Month Leases: A large proportion of the existing leases were on month-to-month terms, which contributed to uncertainty and hindered long-term stability.
Gross Leases: A high percentage of leases were structured as gross leases, meaning tenants were paying all-inclusive rent that didn’t account for changes in operating expenses or pass-through costs.
Building Condition: The building’s dated condition required immediate attention to remain competitive in the market, particularly as it was classified as a C-grade office.

First 18 Months: Highlights of the Transformation

Despite the challenges, EMP moved quickly to reposition the property, focusing on tenant retention, capital efficiency, and overall building improvements. Key achievements include:

1. Capital-Efficient Refurbishment of Entrance Lobby

A strategic and cost-effective refurbishment of the building's entrance lobby was undertaken. This facelift significantly improved the property’s first impression, enhancing its appeal to current and prospective tenants without excessive capital outlay.

2. Secured $550K+ Annual Gross Income
Since May 2023, over $550,000 in additional annual gross income has been secured—a notable achievement considering the property's previous state and the difficult market environment.

3. Tenant Retention & Lease Extensions
A strong focus on tenant retention resulted in 16 new and extended leases. These lease renewals and agreements stabilised the income stream, reduced vacancy, and reinforced the property’s market position.

4. New Large Tenant
A significant milestone was achieved with the securing of a new, large tenant, who now occupies 10% of the property’s Net Lettable Area (NLA). This addition has provided both financial stability and increased credibility to the asset.

5. Lease Conversion and Term Extensions
Several leases were converted from gross to net leases, giving the owner greater control over operating costs and increasing the longer-term net income. Additionally, many leases were extended, securing longer-term commitments from tenants.

6. Decreased Vacancy Despite Rising Secondary Office Vacancies
In an environment where secondary office vacancy rates were rising in Midtown, the overall vacancy at 220 Queen Street was significantly reduced by working with the real estate agent community to achieve these outcomes.

7. Retail Kiosk Development
A creative initiative involved constructing and working with real estate agents to lease a retail kiosk at the building’s main entrance. This new retail space has delivered a 22% return on the capital applied, enhancing both the property’s income and its appeal to foot traffic.