Cossey Road, Drury

This landbank development site was withdrawn from the market. It is one of the few high quality greenfields sites on the market currently in the entire South Auckland area. It is 40,468m2 of Mixed Housing Urban Zoned land situated in the Drury East Precinct. It is similar in many aspects to the site at 114 Fitzgerald Rd we previously analysed.

• This land is zoned for Mixed Housing Urban (MHU). It sits on the Eastern extent of a larger block of MHU which backs onto THAB live zoned land to the west and Future Urban zoned land to the east (further from Drury Station). It’s anticipated that housing in this area would support future medium density type duplexes and townhouses. Typical lot sizes in this area will likely be developed between 200-400m2.

• A fairly flat site with good drainage attributes. The whole site drains to the northern boundary where water is collected to the natural open watercourse on the neighbouring property.

• The site is unencumbered with flood plain or flood prone areas. It is likely that this site will achieve higher net site yields and/or require less imported fill to correct ground levels at the design stage. Due to the gradual sloping site, achieving cut/fill balances for the site will be simplified and further reduce imported fill/earthworks requirements.

• This site is not fully serviced. There are services nearby which would need to be extended ~600m along Cossey Rd to the subject site. It’s unclear how the funding structure would look to extend these utilities or whether there has been prior discussions with other affected landowners that would benefit from these lines extensions. This aspect adds development cost to the land, reducing what can be paid for the land, however completing these improvements would also add significant value to this block. Given that the site backs onto the Fulton Hogan works, there may be opportunity to service the site through some arrangement with FH, however it is unclear if these options have been explored.

• Surrounding developments are underway. This property backs on to the Fulton Hogan Drury East Precinct. As nearby projects progress, the value of this land will also increase.

• The site has good road frontage, access and visibility for vehicles turning onto Cossey Rd. The nearby Mill Road arterial announced by the Government recently as part of a potential fast track project would likely be the quickest route to SH1 access. Timeframes for the southern end of the Mill Road works are unclear but on completion will undoubtedly increase land values in this precinct.

• The site is adjacent to mixed use and varying business zones which in the future will offer excellent amenity. The site is within walkable distance to the Drury Station and town centre. The site will have good future connectivity and proximity to motorway interchanges.

• Based on these and other assessment criteria, we rated this site with a developability index of 81%. The net developable area was assessed as 40,468m2. Loss of additional land through provision of access roads would result in a conservative net site yield of 120 lots, subject to layout constraints.

EstateMaster Analysis - Scenario 1

Some key assumptions for the Scenario 1 development of 120 lots are as follows:

• High efficiency road layouts with minimal loss of land to reserve

• Average lot sizes of 240m2

• Houses to be developed, consisting of a product mix of terraced housing and duplexes

• Pre-construction period of 15 months

• Civil construction period of 12 months

• Three-year multi-staged building construction period partially staggered within civils construction

• Sales period of 24 months, including pre-sales period of 6 months

• Average lot sale of $750k exc GST

• 50% of project costs financed at 10% +fees. 50% financed through equity contribution.

• Civil construction costs based on typical current rates per lot for a flat mid-sized subdivision. Getting services to this site may represent increased costs while favourable drainage and earthworks aspects would keep this site around mid-range civils costs.

• Residential construction costs based on typical unit rates for low spec two level terrace houses/duplexes. Sizes range but the average for the product mix is 120m2. Efficiency savings applied due to scale. All service connections included

• Development contributions in line with current 2024 rates

• Revenues escalated at an average of 5% and costs escalated at 3%, with the exception of Statutory Fees escalated at 7.5%.

• Project contingency on all costs of 5%, net of all escalations

• Hurdle rates with target development margin of 20% / 15% IRR. Hurdle rates would vary between Developers in the current market, depending on appetite for maintaining continuity of works or economic outlook.

The outputs for this indicated a negative residual land value based on the hurdle rates above. In essence, this project is not feasible under these parameters specified above as the business case is only supported if nothing is paid for the land.

An alternate, less conservative scenario was also explored through changing the following parameters:

• Reductions in the development timeline (construction periods were reduced as much as realistic)

• Sales periods were reduced

• Average lot sales were increased

• Civil construction costs were reduced 5%

Under these parameters, the residual land value to maintain the hurdle rate margins was found to be $6,550,000+GST or around $7.5M inc GST.

Looking at this property on a pure $/m2 comparative market analysis is dangerous. The top end range for landbanks of similar size, zoning are developability is $250-350/m2, most of which were based on pandemic peak pricing and bullish Investor speculation. Agents are still pushing these type of numbers when there is zero business case to support them. Based on the research we completed on this site and the parameters above, under improved market conditions to those currently, a reasonable price for this site would be around the $200/m2 mark.

With this site, there is likely a mismatch with Vendor expectations and the bottom line that Developers can achieve. It is still a great site from a planning, construction and engineering perspective, however for a sale to go through it would likely require the interest of the larger scale, low-cost Developers or possible an Investor with an aggressive outlook on the future market in general. With a current glut in Auckland townhouses on the market, it is possible this site will not change hands until the next market upturn.