COVID-resilient businesses continue to be hot commercial property

COVID-busting businesses including small retail sites, childcare centres, medical facilities and service stations have powered almost $190 million in auction sales across Australia’s three largest cities.

Burgess Rawson partner Billy Holderhead said the firm’s September portfolio auctions, held over three days last week, performed “well beyond our wildest expectations” as investors sought security in pandemic-proof businesses.

The auction included Burgess Rawson’s first standalone campaign in Brisbane, where buyers pounced on 17 of 18 listed properties for a total of $51.4 million – 13% over reserve.

Across the three days, 546 registered bidders vied for 54 properties around Australia. Of those, 49 sold – a 90.7% clearance rate with blended yield of 4.7% – for a total of $189 million. Burgess Rawson estimated there was undeployed capital of just over $1.5 billion among the buyer pool.

Properties that sold included 12 childcare centres, eight petrol stations and automotive service centres, four medical or veterinary facilities and a host of retail outlets including bank branches and fast food.

Mr Holderhead said the portfolio lacked some “hero” properties housing marquee retailers, but buyers saw the potential for excellent returns.

“Most of those businesses have traded strongly through COVID,” he said.

“This portfolio was a really even list. It didn’t have those standout properties like a Bunnings that everybody watches, but we had a response that was as big as those.”

This Coates Hire site in Adelaide sold for $16.1 million with a yield of 3.59%. Picture: realcommercial.com.au/sold

In the Melbourne auction on September 28, Kingston Funerals’ Cheltenham premises attracted 69 bids from 14 bidders, selling to a Melbourne-based investor for $3.83 million with a 3.78% yield.

A local buyer snapped up a Coates Hire site in Adelaide’s Albert Park for $16.1 million with a yield of 3.59% in a hotly-contested sale.

Seventy-five bids drove the price of a Ford dealership in Melbourne’s Sunbury to $9.61 million, with a 5.2% yield. The winning bidder, based in Sydney, has spent about $15 million through Burgess Rawson this year without inspecting any properties.

In the Brisbane auction the following day, a Melbourne investor beat 24 bidders to secure a Mitchelton Jax Tyres outlet for $4.52 million with a 3.1% yield.

A KFC and Pizza Hut in Uraween, Queensland, sold after 84 bids for $7.96 million with a 3.98% yield.

Two Greenacres Vets properties in Toowoomba sold separately to a Sydney investor and a Melbourne investor for a combined $3.365 million, with yields of 4.49% and 5.14% respectively.

At the Sydney auction on September 30, 22 bidders pushed the Umina Beach Affinity Childcare sale price to $7.5 million – $2.05 million over reserve – on a record-breaking yield of 2.99%. Turramurra Handprints Childcare sold for $8 million, with 16 bidders in the hunt.

A Woolworths petrol outlet in Salamander Bay, NSW, sold for $3.51 million, attracting 40 registered bidders and 38 bids.

Channel 7’s South Australia building was withdrawn from the auction.

But one of the most anticipated properties, Channel 7’s Adelaide offices in Hindmarsh, was withdrawn just before the auction for improvements ahead of a future sale.

“It was a real pity because the way the Coates Hire sale went, it would have gone absolutely nuts,” Mr Holderhead said. “No-one in the world thought it would go that well.”

The vast Coates Hire site offers multiple street frontages and potential redevelopment on the doorstep of extensive urban renewal in Port Adelaide, he said.

The Brisbane auction results were outstanding, Mr Holderhead said.

“We have talked about the strategy for 10 years. Most property has been bought from NSW and Victoria, but suddenly we had a good supply of property in Brisbane that was going to overload the Melbourne and Sydney auctions,” he said.

“In the end, it worked unbelievably well for our first standalone auction. We will roll it out every time now.”

The pandemic has spurred interest in COVID-resilient businesses, despite the Sydney and Melbourne lockdowns impacting inspections.

“It should have had a negative effect (with buyers being unable to physically inspect the properties they are buying), but it’s probably been a positive,” Mr Holderhead said.

“Victorian and NSW buyers in lockdown haven’t had normal distractions. They have time on their hands. They are digging into property and the fact they can’t inspect it has not been an issue.”

Mr Holderhead said such businesses were Burgess Rawson’s main game before the pandemic.

“We’re well placed. Money is getting cheaper and cheaper. Our buyer profile is not focused on their investments every day, but they are getting next to no return on their money in the bank and that has led to this momentum in the market,” he said.

REA Group economist Anne Flaherty said investor interest in commercial property reflects low inflation and share market volatility.

“Defensive income is the name of the game. Assets that provide a secure income and are well tenanted are going to be very attractive to investors,” she said.

“What we have seen particularly over the past year is that the number of people looking to buy commercial properties has risen very strongly, but that has not been matched by a corresponding number of properties available for sale.

“That’s one of the reasons (in this auction) that we have seen such a high clearance rate.”

Ms Flaherty said with the Reserve Bank of Australia indicating it won’t raise interest rates before 2024, commercial property is likely to remain strong.

She said Burgess Rawson’s move into the Brisbane market makes sense.

“Since COVID hit, interstate migration into Queensland has really accelerated. It’s a fast-growing state and a fast-growing economy. Commercial property benefits when populations grow.”

Burgess Rawson’s next portfolio auctions will be held in Sydney, Brisbane and Melbourne from November 9 to 11.