Eager investors target long leases in commercial portfolio auction

A waterfront pub on the Sunshine Coast and a Brisbane childcare centre each fetched more than $10 million as eager investors snapped up commercial assets with long leases worth in excess of $133 million in portfolio auctions.

Essential services properties, popular throughout the coronavirus pandemic, were again in strong demand from high-net-worth investors at Burgess Rawson’s two auctions this week, which achieved a 100% clearance rate.

Burgess Rawson Melbourne director Jamie Perlinger said residential investors were now also competing with the commercial buyer pool.

“Investors are eager to spend with plenty of undeployed capital sitting frustratingly idle,” Mr Perlinger said.

“Consequently, with low stock levels, yields are contracting as investors are comfortable buying at lower yields in order to secure an investment.

“To add to the pent-up demand is fresh interest from residential investors who have been outpriced of the housing market. The appeal of essential service tenants, long leases, reliable rent and strong land values is proving irresistible.”

Burgess Rawson sold 26 properties under the hammer at Wednesday’s Melbourne auction, which was watched by more than 1000 people from Australia, New Zealand, the US, Hong Kong and Taiwan.

The agency said the properties sold for an average of 11% over the reserve prices and reached a combined total of more than $109 million, with the prices for two properties undisclosed.

Ten properties were sold through Tuesday’s Sydney auction for a total of $24.3 million, with one asset selling for an undisclosed amount.

A Brisbane CBD childcare centre achieved one of the highest prices. Picture: realcommercial.com.au/for-sale

The biggest sales were the Pelican Waters Tavern on the Sunshine Coast, which sold for $10.8 million on a 4.15% yield, and a childcare centre in the Brisbane CBD, which sold for $10.15 million on a 6.62% yield.

The Pelican Waters Tavern was one of four trophy pubs that Australia’s biggest pub landlord, ALE Property Group, put on the market. Each have 25-year triple net leases to Australia’s largest pub operator ALH, whose parent company Endeavour Group is 85.5% owned by Woolworths.

This Sunshine Coast pub was sold for $10.8 million. Picture: realcommercial.com.au/for-sale

Brisbane’s Edinburgh Castle Hotel and Kedron Park Hotel sold for $7.5 million and $4.6 million respectively, while the Morwell Hotel in Victoria’s Latrobe Valley fetched $3.06 million.

A property in Sydney’s Neutral Bay leased by Tabcorp as a TAB betting outlet attracted the interest of 100 investors, selling for $3.4 million.

“The A-grade, ASX-listed tenant, location and favourable lease terms were all major draw cards for the interest received in this property,” Burgess Rawson associate director Kieran Bourke said.

Mr Bourke said the $2,655,000 sale of a pharmacy tenanted by Star Discount Chemist in the NSW town of Cardiff, on a low 4.43% yield, demonstrated the current demand for strong regional commercial assets.

There is rising demand for regional commercial assets, particularly essential services. Picture: realcommercial.com.au/sold

“With the trend of people moving away from central city locations into regional areas, we have noticed a shift in the market with regional assets becoming increasingly more sought after,” he said.

Burgess Rawson director Simon Staddon predicted it would be a lasting trend.

“We see investor confidence in regional areas to be a long-term transition, not just the current climate due to COVID,” Mr Staddon said.

He said the sale of a Chemist Warehouse in Nowra on the NSW South Coast for $2,755,000 and the pre-auction sale of a medical centre in Mona Vale for $700,000 demonstrated the strength of and demand for the essential service medical asset class.

“This sector is incredibly hot right now and growing in popularity,” Mr Staddon said.

Mr Perlinger noted a childcare centre leased to Sparrow Early Learning in the outer Perth suburb of Quinns Rocks sold before the auction for $2.72 million, achieving a record yield of 5.36%.

“This is the sharpest ever yield for a childcare investment in Western Australia,” he said.

“A private investor couldn’t wait until auction day, snapping up the property on a coveted 20-year, triple net lease.”

Three properties in Kingston, Mornington and Wivenhoe leased to Tasmanian hardware brand Nubco, part of the ASX-listed Coventry Group, sold for a combined $7,335,000, averaging 12% above reserve.

A Carl’s Jr burger restaurant in Melbourne’s Thomastown sold for $6.41 million.