Investors snap up ‘COVID-proof’ essential services during lockdown
Investor demand for essential services properties remains at record levels despite Greater Sydney’s prolonged coronavirus lockdown, with buyers snapping up more than $90 million in “COVID-proof” assets at auction.
There was strong competition for petrol stations, childcare centres, fast food assets and medical properties in Burgess Rawson and Cushman & Wakefield’s separate Sydney portfolio auctions, despite them being conducted remotely due to the lockdown.
Burgess Rawson director Darren Beehag said the pandemic has boosted demand for essential services assets, as investors target businesses able to trade through lockdowns and COVID restrictions.
“The market is as strong as we’ve ever seen it right now,” he said.
Mr Beehag said the strength was across essential services assets such as childcare, service stations, medical, fast food and government-leased properties.
“Some of those uses which we used to call recession proof, now we’re saying they’re not only recession proof but they’re COVID proof,” Mr Beehag said.
“The market’s really gravitated towards those investments because they’re seen as a safe haven, and they’re willing to pay a premium to secure them.”
Sixteen of 18 properties sold for a combined $42.2 million as part of Burgess Rawson’s Sydney portfolio auction, including seven that were sold before Tuesday’s auction day.
Ten of 12 assets sold for a total of $51.5 million at Cushman & Wakefield’s national portfolio auction that was conducted online on 28 July, while a 13th property sold pre-auction.
Cushman & Wakefield’s head of national investment sales Michael Collins said high-net-worth investors are targeting commercial property during the pandemic.
“Interest in service stations, childcare and medical assets remains at an all-time high,” Mr Collins said.
“With one in five enquiries resulting in a request for contract and an uplift in pre-auction offers, it shows that demand remains high despite the latest lockdowns.”
Investors at $42.2m auction unfazed by lockdown
Burgess Rawson’s Sydney auction was conducted remotely due to the lockdown, with phone and online bids received from 102 registered bidders across the country. Bidding was also available in person at the agency’s other state offices.
“Investors are now well accustomed to online and phone bidding so moving to a remote auction really was ‘business as usual’, which is reflected in the outstanding results,” Mr Beehag said.
Mr Beehag said the lockdown was a timely reminder for buyers about the benefits of essential service investment.
“They can still trade and pay their rent,” he said.
Mr Beehag said a lack of freehold investment supply in NSW also drove fierce competition at the auction.
“The demand hasn’t gone away, in fact it’s increased, so we’re getting higher enquiry numbers while stock levels, particularly in Sydney and wider NSW, have lessened.”
Mr Beehag noted there has been yield compression for essential services throughout 2021.
“The market is stronger today than where we were even earlier in the year. It comes back to those specific asset classes that are in really strong demand.”
With the pandemic fuelling demand for fuel and retail convenience offerings, 11 bidders vied for a United service station in the regional NSW city of Tamworth. It sold for $5.02 million on a yield of 4.73%.
A KFC in the regional NSW town of Tumut attracted 17 registered bidders, selling for $2.63 million on a yield of 4.39%.
“With fast food, there’s not that many that come up in any given year, so when they do come up they’re pretty well contested and even more so than ever today on the back of COVID,” Mr Beehag said.
“When it’s government-backed like childcare or has government support, that’s another tick for that specific asset class as well,” Mr Beehag said.
A Rise & Shine childcare centre in Sylvania in southern Sydney sold for $9.4 million on a national record yield of 3.7%.
Mr Beehag attributed the record result to the strength of the childcare market and the centre being in a tightly-held, strong metro location.
The pre-auction sales included a Wonderschool Early Learning Centre in the Canberra suburb of Phillip that fetched $9,895,000 on a 5.21% yield, and an entry-level bulky goods retail investment leased to Pacific Furniture and PETstock in Ulladulla on the NSW south coast, which sold for $1.3 million.
Burgess Rawson’s Melbourne portfolio auction will be held remotely on Tuesday 10 August, with Victoria back in lockdown.
Interest at an all-time high at $51.5m auction
Service station sales accounted for $20 million of the $51.5 million in assets sold at the Cushman & Wakefield portfolio auction, while childcare centres were also popular.
The most expensive property in the portfolio was an Ampol/Caltex service station with a Red Rooster outlet in Toowoomba in Queensland, which sold for $11.2 million in an expressions of interest campaign at a yield of 5.75%.
A United-leased service station in Brisbane’s Coopers Plains sold at auction for $7.9 million on a 5.6% yield.
Mr Collins said the Cushman & Wakefield team was in advanced negotiations over two additional United service stations that were expected to fetch more than $15 million.
“We continue to see yields sharpen across alternative commercial property asset classes, driven by both demand and stock availability for well-located properties,” he added.
Cushman & Wakefield received more than 1000 enquiries and almost 200 requests for contracts for the properties in its latest portfolio.
Three childcare centres in Queensland sold under the hammer while another sold post-auction.
A centre leased to G8 Education in the Brisbane suburb of Morningside sold for $7.2 million on a 4.98% yield, while a new Arana Hills Centre leased to Kids Club sold for $5.6 million on a 4.99% yield.
Cushman & Wakefield associate director Tom Moreland said both centres sold for well in excess of their reserve prices.
“We saw childcare centres continue to draw the eye of investors given their long-term lease fundamentals and confidence in the tenants’ operating businesses,” Mr Moreland said.
“We are fielding regular calls from high-net-worth investors and funds looking to gain exposure to the childcare industry.”
An investor attracted to the boom in regional travel during the pandemic paid $7.6 million, on a yield of 5.3%, for a large format retail property tenanted by boating, camping and fishing retailer BCF in Warrawong, a Wollongong suburb in NSW.
A medical centre in Sydney’s Norwest Business Park sold for $2.43 million, achieving the lowest yield among Cushman & Wakefield’s latest portfolio at 4.95%.