Investors add childcare, fast food assets to Christmas hampers
A childcare centre in the inner Melbourne suburb of Prahran sold on a yield of just 3.12 per cent and a Hungry Jack’s in Wangaratta in regional Victoria traded on a return of just 3.85 per cent at a commercial property auction on Wednesday as private investors showed they were still willing to pay well over asking price for some assets even as borrowing costs rise sharply.
In total, $35.7 million of retail and childcare assets changed hands at the Melbourne Burgess Rawson portfolio event, which generated a 77 per cent clearance rate and a blended yield of 4.9 per cent.
However, not all vendors walked away with a capital gain.
An investment company jointly owned by former Fosters CEO Trevor O’Hoy, Peak Equities director Ian Foote and Taverners Victoria chairman Stuart Stockdale were left nursing a capital loss after their Moonee Ponds childcare centre sold for $6.45 million (on a 5 per cent yield). That was below the $6.6 million they paid in March 2020 when they bought it from Moonee Valley Race Club.
Wednesday’s results, which included an IGA supermarket in Seymour in regional Victoria that traded for $2 million on a 4.15 per cent yield, were an improvement on a lacklustre Sydney auction on Tuesday, where just half of the properties sold under the hammer. Most of the Sydney offerings were industrial assets leased to Woolworths-owned PFD Foods and sold by Charter Hall.
Ingrid Filmer, managing director at Burgess Rawson, said the Melbourne auction showed the latest RBA rate rise, bringing rates to a decade-high of 3.1 per cent, had failed to quash investor appetite for quality commercial properties, especially those in the essential services and fast food categories.
“The cash rate is up 50 basis points since our last auction in Melbourne while our yields are down 45 basis points,” Ms Filmer said.
However, the combined clearance rate of 70 per cent for the Sydney and Melbourne auctions (when including post-auction sales) was still well below the 96 per cent clearance rate achieved for similar portfolio auctions held at the end of October, suggesting higher interest rates are having an impact on overall buying appetite.
Childcare, fast food appeal
In a further sign that investors are being more discerning, combined sales from the Sydney and Melbourne auctions this week totalled $53.3 million, down 28 per cent on the $73.3 million of total sales achieved six weeks ago.
However, certain asset classes continue to appeal to investors regardless of the cost of debt, including securely leased childcare centres and fast food outlets.
The Prahran childcare centre, which was sold with a 10-year lease to Guardian Childcare and offered by Charter Hall’s listed Social Infrastructure REIT, reflected this appetite. It sold above book value to a local developer for $3.27 million on a yield just above the new cash rate.
“Investor demand for assets under $5 million remains strong,” a Charter Hall Group spokeswoman said.
She added that Charter Hall had sold $25 million of assets this week, four childcare centres and 12 industrial assets, at attractive premiums to book values.
“There were a number of assets which achieved yields in line with current bond yields, in particular a childcare centre in Prahran.”
Demonstrating the enduring appeal of fast food restaurants leased to major brands, the Hungry Jack’s in Wangaratta sold for $3.16 million on a sub 4 per cent yield, despite being offered with a relatively short lease expiring of 2027 with no renewal options.
The vendors, a self-managed super fund of the Canberra-based Nikias family, walked away with a capital gain of more than $1.1 million, after they purchased the Hungry Jack’s for $2 million in June 2020, also at a Burgess Rawson auction.
Ms Firmer said yields on fast food outlets “had not shifted at all” despite a huge rise in borrowing costs.
“We were selling them at under 4 per cent in February, and we’re still selling them at under 4 per cent in December,” she said.
