Costs threaten redevelopment in city centre

LIZ MCDONALD
Last updated 05:00 02/05/2013
Chch rebuild
IAIN McGREGOR/Fairfax NZ

PLAIN AND FUNCTIONAL: Building projects are continuing in central Christchurch, such as this development by Ganellen on the corner of Gloucester and Durham streets. Astronomical construction costs are, however, making it hard to attract prospective tenants at the expected new rents.

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Spiralling construction costs are threatening redevelopment in central Christchurch, prompting calls for action to get prices down.

Landlords with projects on the drawing board say it is getting harder by the week to find tenants as costs rise, and building without leases is too risky.

Some are rejecting attractive designs and opting for "tilt-panel boxes" to cut costs.

City Mall landlord Nick Hunt is having "not much success" securing office tenants because of the rents needed to fund construction. Hunt owns half a Cashel St block with plans for an office and shopping precinct.

"The big difficulty is the construction costs. It makes it incredibly difficult for the tenants because the rents will have to be so high. We're deliberately not being greedy."

He said the problem was compounded by the Government waiting until next year to secure space for public servants.

A report from construction analyst Rider Levett Bucknall said costs were "rising rapidly" in Christchurch, and it forecast more inflation ahead.

At between $3500 and $4500 a square metre, the cost of putting up premium office buildings in the city is now the highest in the country.

A recent survey of property owners by the Central Owners Rebuild Entity pinpointed high building costs as a barrier to redevelopment.

David Wallace, who represents developer Devonia Holdings, expected costs would "ramp up further" once the city's anchor projects began.

"Owners can't afford to build and get a 2 or 3 per cent return; some projects just won't get off the ground."

While banks, lawyers and accountants could afford top rents, there were too few such tenants to go around, he said.

Landlord Shaun Stockman, of KPI Rothschild, estimated costs had risen 12 per cent since the earthquakes, while the blueprint had boosted land prices.

Its Stranges building going up in Lichfield St would make a low return, so it would build others more cheaply.

"You have to build functional but basic tilt-panel boxes to stack up [financially]; not pretty buildings or wow-factor buildings. A really quality product doesn't stack up," he said.

Leasing agent Blair Young, from Bayleys, said developers inside the central-city frame were struggling to compete with fringe locations such as Addington and Victoria St, where land and foundations were cheaper.

Annual rents for new office buildings would be up to $450 a square metre, whereas before the earthquakes few exceeded $350.

"They [developers] are going to have to work out some way to reduce their construction costs through technological advancements and how they access materials. They've got to keep rents down," he said.

Central City Business Association manager Paul Lonsdale said solutions could include businesses using space more efficiently and landlords offering discounts to attract tenants.

He said smaller businesses needed cheaper rents, but he did not know how that could be achieved.

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