Rare McDonald's site at Wallsend in Newcastle set to go to auction
A Newcastle building leased to McDonald’s and currently generating close to half a million dollars in rental income a year is expected to attract big interest with investors when it goes under the hammer in November.
The property, which sits on a 4063-square-metre site at the corner of Cowper and Kokera streets in the western Newcastle suburb of Wallsend, was built in 2014 and is leased to McDonald’s Australia under a 25-year agreement ending in December 2039.
It generates a net income of $402,820 a year for current owner Haben Property Fund, with McDonald’s responsible for paying outgoings and maintaining the building.
JLL’s Dylan McEvoy expects the asset to be popular with investors seeking “defensive assets”, typically low risk but income producing, in the current low-rate climate with the long lease structure and consistent income increases providing surety for buyers.
“McDonald’s leases are one of the most desirable covenants within the retail and fast food asset market due to their superior and rare lease structure for investors,” Mr McEvoy said.
“The quality of tenure and the favourable lease structure offering base rental increases throughout the term will ensure the assets appeal to a broad set of investors,” said JLL’s Sam Hatcher, who has the listing with Mr McEvoy.
It was rare for a McDonald’s asset to be offered to market, according to Mr McEvoy, further boosting demand for the property.
“Leased McDonald’s investments are quite rare to be offered for sale within the market as McDonald’s primarily own, develop and hold their own sites,” he said.
Located approximately 11 kilometres from the Newcastle CBD, the site has 62 car spaces, is opposite the Wallsend Oval and in close proximity to Wallsend Village.
Yields on fast food properties have compressed significantly in recent years as demand for covenant-backed leases increase and land values in major cities such as Sydney and Melbourne skyrocket.
A 2018 report from commercial real estate firm Burgess Rawson found that fast-food property yields had compressed from a median 7 per cent in 2012 to 4.92 per cent in the 2017-18 financial year, across metropolitan and regional centres.
The record price for a free-standing, drive-through fast-food asset was set in 2016 with the sale of a KFC in Artarmon, on Sydney’s north shore, for $8.76 million.
Earlier this year the largest McDonald’s in the southern hemisphere changed hands as part of the sale of a four-level shopping centre at 130 Queen Street, in Brisbane, for more than $77 million.
While the Wallsend property is in a smaller market than either of those sales, Mr Hatcher said it was in one of the fastest-growing corridors in the Newcastle metropolitan area.
“The city of Newcastle has seen strong growth in the past decade, showing a population growth of 15.4 per cent between 2011 and 2016, and a positive amount of development in recent years,” Mr Hatcher said.
Wallsend McDonald’s, at 20-24 Kokera Street, will go under the hammer on November 26.
