Demand still strong for premium assets at Burgess Rawson portfolio sale

Buyer numbers were down at Burgess Rawson’s end-of-financial-year portfolio auction, but ongoing confidence in commercial properties with favourable lease terms and solid tenants led to surprisingly strong results.

Essential service assets such as petrol stations and childcare centres scored the highest sales across the three events in Sydney, Melbourne and Brisbane, while new buyers to the commercial space sought more affordable assets with strong income streams.

Private domestic buyers dominated the auctions, which saw a clearance rate of 82.5% and 33 properties sell for a combined $199,765,620 million on a blended yield of 5.52%.

By comparison, Burgess Rawson’s May auctions saw a clearance rate of 81.4% with 35 properties achieving $130,281,000 on a blended yield of 5.16%. The March auctions saw a clearance rate of 84.1%, when 53 properties sold for a combined $186,406,000 on an average yield of 5.02%.

National partner at Burgess Rawson Raoul Holderhead said he was stoked by this week’s results given recent interest rate rises, which had seen buyer registrations reduce by around 30% to 40%.

“The market has been good for so long, and this was a real test today. But when we look at these results we can still see a lot of buyer confidence. We had super results all around to be honest. I think quite a few agents were shaking their heads.”

Surprising results driven by lure of secure income

There was a slew of surprising results, with demand driven by rental incomes not achievable in residential property.

Ferguson Plarre Bakery in Epping, north of Melbourne, passed a reserve of $1 million to sell for $1,260,000 on a yield of 4.29% after nine registered buyers made 101 individual bids.

“Not a single person saw that coming. It was a new development with a new lease to a well-known Melbourne name,” Mr Holderhead said.

Ferguson Plarre is an established family-owned bakehouse brand operating more than 85 bakeries across Victoria. Picture: realcommercial.com.au/for-sale

Investors fresh to the commercial space also fought for established Asian noodle bar Noodle Mas in Wangaratta, Victoria, which sold for $686,000 on a yield of 4.99%.

Meanwhile, brand new swimming facility King Swim, also in Epping, secured one of Melbourne’s highest sales of $5,800,000 on a yield of 5.52%.

The brand new swimming facility in Melbourne’s north offers fixed 3% annual rent increases, with the tenant paying all the usual outgoings. Picture: realcommercial.com.au/for-sale

The biggest surprise in Sydney was an office asset in Gosford’s CBD leased to accounting firm RSM Australia and legal practice Kent Law Group, which sold for $5,060,000, more than $1 million over reserve, on a yield of 4.95%.

Ongoing demand for quality childcare centres and fuel stations

Childcare centres continued to secure solid sales, with an anticipated new Labor policy to relieve childcare costs for 96% of families expected to boost the sector.

Five childcare centres sold across the three days, including Sparrow Early Learning in Butler, WA, which sold in Melbourne for $5,010,000 on a yield of 5.12% following bids from five bidders. Smartland Early Learning in Port Macquarie, with a brand new 20-year lease, achieved the second highest price in Sydney, selling for $6,245,000 on a yield of 5.30%.

This strong performing childcare centre with high occupancy rates and an extensive waitlist in Port Macquarie is leased to 2042 with options to 2057. Picture: realcommercial.com.au/for-sale

Seven service stations also sold, with a 7-Eleven in East Brisbane achieving the highest price across the three days of $7,120,000 on a yield of 4.91%. In Sydney, a Shell Viva Energy petrol station in Beresfield, NSW, sold for $6,925,000 on a yield of 5.54%, while EG Fuel service station in Lisarow, NSW, achieved the portfolio’s lowest yield of 3.95%, selling for $2,150,000.

Mr Holderhead said yields for fuel stations have risen in recent months, with older developments with older improvements harder to shift.

“It comes down to the lease terms and age of the building. New service stations are still going to sell,” he said.

This asset was built in 2019 and is leased to Viva Energy until 2035 with options until 2050. Picture: realcommercial.com.au/for-sale

Vanessa Rader, head of research at Ray White Corporate Commercial, said fuel stations and childcare assets should continue to trade well, particularly in metro areas.

“Childcare is still a fan favourite, particularly given the increased subsidies, however buyers are more cautious about these assets with emphasis on location more than they have in the past,” she said.

“Service stations in metro areas will continue to trade well, especially if secured by a national fuel retailer.”

Yields to grow as buyers become more picky

Damian Lynch, associate director of valuations at Acumentis, said the market is adjusting to recent interest rate rises and the prospect of more on the horizon, though the commercial market has remained more stable — for now at least.

“Further rate rises will put pressure on asset prices in the commercial sector,” he said.

Ms Rader said private investors including first-time buyers will not be immune to ongoing rate rises.

“There has not been the competition to drive yields further down as we had previously seen. If the expectation is that interest rates will continue to grow, there needs to be a greater spread to yield for many of these assets to allow for the risk in purchasing commercial assets.”

Auctioneer David Scholes leads the Burgess Rawson Sydney portfolio auction on 22 June, which saw 13 properties sold and three passed in. Picture: Burgess Rawson

But assets with favourable lease terms and reliable tenants will still remain attractive, experts say.

“Tenanted investments are still trading, albeit not at the same level,” Ms Rader said.

Mr Lynch added: “Commercial properties with longer lease covenants to well-regarded tenants are likely to fare better in a rising interest rate environment.”