$3.1b Precinct Properties’ Generator aims to handle flexibility demands

The fallout from working from home and tenant demands for more flexible office space is nothing new, says the boss of New Zealand’s largest listed commercial landlord.

All these changes arrived here ages ago, says Scott Pritchard, chief executive of the $3.1 billion Precinct Properties: “Four or five years ago, people were already talking about that so it was already happening pre-Covid.”

In 2011, the business launched a new leasing model to respond to which it saw as dramatic workplace changes.

“We used to operate only traditional leasing but for us, it’s now a spectrum,” he says from one of three buildings where the company he heads has flexible space it has branded Generator.

Google, Contact Energy, Amex, Silver Fern Farms, Facebook, previously ASB, Expedia, a 5G Spark lab – all have been in Generator space.

Generator was an existing business established in 2010 with one building when Precinct bought half four years ago and the rest in 2019.

Although still a niche for the business compared to the powerhouse traditional leases on long terms, Pritchard cited rising demand from tenants who don’t want to commit long-term.

Generator also lives up to its name by generating higher returns for Precinct, he says. Rents per square metre are much higher than the longer leases and more services are provided like reception, bar and dining, meaning Precinct can provide those and charge Generator tenants for them.

Precinct now offers Generator space in Auckland at:

• The three top floors of the EY/Westpac building, Britomart Pl, once vast offices of ex-Westpac CEO George Frazis. Precinct sub-lets these floors from Cooper & Company in the block originally designed for upper-level apartments, offering extensive decks.

• All of Stanbeth & Excelsior House, 22-28 Customs St East, Britomart. Cooper and Company own that building. Precinct sub-lets it, then sells memberships onto Generator clients – they don’t call it a lease.

• Mason Bros Building, Wynyard Quarter: private studio spaces from 70-120sq m, expandable co-working pods with shared amenities, collaborative spaces and many meeting rooms. Warren & Mahoney has the south end of the building and Generator has the northern end, taking up around half the block.

• 12 Madden St, Wynyard Quarter, part of the Grid AKL network. This 2017 Precinct Properties’ building and valued at $86m. Ground, level 1, 2 and 3 are offered to Generator tenants. Has an events space for 299 people.

• At Commercial Bay, Generator has meeting and event suites in the new $1b PwC Tower and across the road at the old PwC Tower, now called HSBC Tower.

• 1 Queen St, the now-empty building on the waterfront, will have Generator space once Precinct does that nearly $300m redevelopment and installs a new hotel there.

New Wellington projects are underway:

• 30 Waring Taylor St – Generator space is planned to be leased there this year.

• The next stage of the Bowen Campus redevelopment, 40 Bowen St as part of the wider $160m project.

A major accounting advantage means big corporates like Google and Facebook often prefer membership fees like those charged by Generator because they aren’t on balance sheets because they’re paid monthly and are therefore flexible, compared to a fix-term lease which is a balance sheet liability.

Sometimes, big corporates are barred from leasing buildings overseas because of capital expenditure and risk, too.

Despite Pritchard’s optimism about growth potential, the opposite happened lately.

Half-year accounts to December 31, 2020 show Generator income actually dropped from $4.8m to $3.1m. Covid took a toll and Generator space is not fully occupied.

“Year-end occupancy 65 per cent across all sites with tight cost control mitigating lost revenue,” Precinct said, pointing to a 35 per cent Generator vacancy.

Membership revenue was hit by businesses downsizing because of Covid but Precinct has noticed more growth lately. Membership contributes 80 per cent of Generator revenue, followed by events and hospitality.

Tenants can rent a desk at EY/Westpac in the Britomart, for example, for $1300/month or can hot desk for $249/month.

“Most of our members are a year to 14 months here,” Generator general manager John Moffett says.

Private office suites, flexible desking, high-spec meeting rooms, fancy board rooms, agile event spaces, members’ lounges and two onsite bars and cafés are on offer on these three floors.

Weddings are held there: “We’ve had about four in the last two years,” Moffett said

Precinct has a graphic to show the spectrum of leasing from 15-year more traditional models to “bring your own device” models.

Between the 15-year and two-year leasing models is a lease of six or more years where Precinct pays for the fitout. Pritchard showed off offices like this tenanted by law firm TBB, Made Group which is developing the new Oranga at Drury, Morris Legal and Manuka Doctor.

These businesses rent space on level 36 of the new $1b PwC Tower.

“We took one floor out and said we’re going to design it and fit it out and the expectation was that we would lease to occupiers once people saw it. But instead, we leave it to these different businesses which took six to eight-year terms. We put all the offices around the outside of the floor but the boardroom in the middle. That means the offices get the great views,” Pritchard said.

Generator was 3000sq m of Auckland space four years ago and today is 13,500sq m.

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