Essential services a lock for investors as confidence returns

Investors looking for certainty and good returns as the country emerges from extended COVID lockdowns are turning their attention to essential services in the suburbs.

Recent sales activity and a surge in demand for “recession-proof” properties such as childcare, fuel, fast food, medical, industrial and large format retail are filling sellers and buyers with confidence.

Two new additions to the market are a gateway service centre site in development at Tarneit, in Melbourne’s fast-growing west, and an established 7-Eleven site at Wanniassa, in Canberra‘s southern suburbs.

Both are creating keen interest among investors.

The Melbourne site already has tenants – including 7-Eleven, KFC and Magic Carwash – signed to long leases, despite still being under construction and not due for completion until Christmas.

The 10,000sqm property, at the intersection of Derrimut and Dohertys roads, is at the heart of one of the fastest-growing urban corridors in Australia.  At least 10,000 new dwellings are expected to be built in the area over next few years, according to the Victorian Planning Authority’s Tarneit North Precinct Structure Plan.

Rorey James, from marketing agent Stonebridge, said the fact tenants had signed leases on an unbuilt development during the depths of the world’s longest lockdown was testament to the confidence in these assets.

“They really are a safe bet,” Mr James said.

“Buyers are attracted to the covenants and their long leases, typically 10- to 15-year terms.”

The Tarneit 7-Eleven is one of several essential service businesses that will operate side by side. Picture: realcommercial.com.au/for-sale

The Canberra property is an established 7-Eleven site in the capital’s southern suburbs. It was part of a 7-Eleven leaseback portfolio that sold in 2019.

The property is at the entrance to the Erindale Town Centre, which is anchored by Woolworths and features other major retailers including McDonalds.

“With returns elsewhere closer to 0% than ever before, buyers like the attractive returns available in this asset class, typically between 4.5-5.5%,” Mr James said.

Investors hungry for solid returns

REA Group economist Anne Flaherty said there was definitely increasing demand for “recession-proof” properties such as service centres.

“Increased risk causes investors to rethink their assets,” she said. “Investors are looking for a steady income stream and petrol stations are attractive as they are a need.”

When they’re located in high-growth residential corridors, such as the Tarneit development, then they are especially attractive to investors.

Ms Flaherty said listings with realcommercial.com.au had increased over the past 12 months across all asset classes.

“Properties with good tenants in place that are less impacted by lockdowns are in extremely high demand,” she said.

These assets include childcare, fuel, fast food, medical, industrial and large format retail.

The proof is in the sales results.

Cushman & Wakefield recorded its strongest portfolio auction in history in September, which proved intense demand remains for assets housing COVID-proof tenants.

There was fierce competition for essential services such as childcare centres, fast-food outlets and healthcare properties. Collectively investors snapped up $43.8 million worth of assets, which sold for about $4.6 million above reserves with a 100% clearance rate.

Burgess Rawson had similar outcomes with its September portfolio auctions, which performed “well beyond our wildest expectations”.

The company is confident its next line-up of properties to go to auction over three days this month will surpass the September results.

The sale is packed with recession-proof assets including childcare centres, service stations, medical centres and fast-food restaurants.

There are 68 properties on sale headlined by brands such as KFC, Coles, Woolworths, Dan Murphy’s, Liquorland, Ikea, Viva Energy and Kmart. Prices range from $550,000 to about $60 million.

National head of agency Adam Thomas told realcommercial.com.au the auctions could surpass Burgess Rawson’s record-breaking September events, in which 49 properties changed hands for a combined value of $189 million on a blended yield of 4.70%.

“Confidence is at an all-time high and investors continue to focus on secure, long-term investment leased by the government or an essential service tenant,” Mr Thomas said.

Knight Frank chief economist Ben Burston told realcommercial.com.au the outlook is positive now that lockdowns are easing.

He said confidence is picking up and this will drive an acceleration in deal activity over the next 12 months.

“Investors are keen to secure assets now to take advantage of the recovery,” he said.