Investors chase childcare assets and regional properties

An Officeworks in Albury and a Melbourne childcare centre both sold for more than $10 million as investors chased regional commercial assets and early learning properties in portfolio auctions.

Burgess Rawson sold 37 commercial properties at portfolio auctions in Melbourne and Sydney this week for a combined $131 million. Negotiations are ongoing for one property, a Harvey Norman outlet in Broken Hill, and four properties sold prior to auction.

An Explorers Early Learning centre in Williams Landing in suburban Melbourne sold for $10.98 million with a yield of 4.75%, which shows that yields are sharpening in childcare commercial property according to REA Group economist Anne Flaherty.

“It (the tighter yields) tells us that demand from investors for childcare centres is growing. If yields are coming down then it means that demand is growing from investors,” she said.

While yields do vary across asset classes in commercial markets, typically commercial property yields range from 3-7%, Ms Flaherty said.

The Williams Landing centre was among six childcare properties in the Burgess Rawson portfolios, four of which sold for yields below 5%. The remaining two childcare centres with yields over 5% included one located in Kedron in Brisbane that sold for $5.7 million and another in Manunda near Cairns in Queensland that sold prior to auction for $2.51 million.

This childcare centre in Kedron was sold by Burgess Rawson before the portfolio auctions for $5.7 million. Picture: realcommercial.com.au

Adam Thomas, director at Burgess Rawson said while it wasn’t common for childcare assets to sell for over $10 million as the one in Williams Landing did, it shows the market recognises the essential nature of childcare services and the stability of the income they generate.

“No it’s not (common). As land values increase and rents increase then that invariably increases the value of the asset at the same time. So we’ve seen an increase in rent in addition to a compression in yield and that increases the value of the asset,” Mr Thomas said.

Williams Landing in the west of suburban Melbourne is a growing area which is home to Target’s store support office and a new triple zero centre, all of which makes it particularly attractive to commercial property investors, Ms Flaherty said.

“I think it’s an area growing in employment. So there’s probably a growing white collar workforce out that way that would have demand for childcare,” Ms Flaherty said.

The Burgess Rawson portfolio auctions that included the childcare assets were held on Tuesday and Wednesday, coinciding with Tuesday night’s federal budget that included an additional $1. 7 billion investment in childcare. The funding boost may have added to the already-growing investor demand for this asset class, Ms Flaherty said.

“I think childcare has been performing strongly for many, many years.  I don’t think it as an asset class has improved that much, it’s always been strong. I just think that because some other asset classes have not been performing as well, it’s caused some investors to rethink the makeup of their portfolios,” she said.

“Last year for investors in commercial property there was a big shift. In the past offices were seen as a much lower risk asset type but now with the increase in remote working, offices have become comparatively more risky.

“For investors who are looking for that stable rental income and looking to keep their vacancy risk lower, a childcare operator represents a really good tenant,” she said.

Mr Thomas said that childcare properties are also attractive to investors from all over Asia.

“Now it’s everyone, now we’re seeing repeat and return investors,” he said.

“It’s more your private local and overseas investors looking at these (centres),” he said.

This Officeworks in Albury sold for $10.95 million. It was one of a number of regional commercial properties snapped up by investors. Picture: realcommercial.com.au/sold

Regional properties also featured heavily in these portfolio auctions with an Officeworks in Albury in NSW selling for $10.95 million on a yield of 4.79%.

Other regional assets included a Harvey Norman in Armidale in NSW that sold for $3.45 million, an Australia Post and business centre in Bendigo that sold for $6,375,000, 16 apartments in Albury that sold for $2.45 million and a car dealership in Narrabri that fetched $1.92 million. A Seed Force warehouse in Shepparton sold for $4.49 million and a Victorian government building, also in Shepparton, sold for $2.12 million.

This Seed Force warehouse and industrial property sold for $4,490,000 with a yield of 5.68%. Picture: realcommercial.com.au/for-sale

Shaun Venables, director at Burgess Rawson said the lack of stock right now was encouraging investors and buyers to look at regional areas.

“We’ve always sold a lot of property in regional areas. I guess the interest in looking at commercial regional property at the moment is the shortage of stock generally, the quality investment stock,” he said.

Larger retailers in regional centres tend do well due to brand recognition and the fact that customers can’t just drive to another store Mr Venables said.

“I guess what that says about that regional centre is if Woolworths, Coles and Officeworks are in that location then obviously the catchment is strong enough to support them. Based on that even with your smaller offerings it gives people confidence to buy,” he said.

The interest in regional assets shows it’s not just residential buyers who are looking to regional and rural areas, Ms Flaherty said.

“The strength of the results that we’ve seen for these commercial properties in the regional areas really speaks to the growing investor confidence in these regional markets,” Ms Flaherty said.

Commercial property investors from overseas are also attracted to regional properties.

“There’s also growing interest in regional Australia from offshore investors as well. In the past offshore investors when they considered investing in Australia, generally their focus was on greater capital city regions, but there’s now a growing focus on regional Australia,” Ms Flaherty said.

This Waterloo Pizza Hut sold for $2,560,000. Picture: realcommercial.com.au/for-sale

Fast food outlets, including a Sydney Pizza Hut that sold for $2,560,000 and a Hungry Jack’s in Port Kennedy in Perth that fetched $4.8 million were also popular with buyers, according to Burgess Rawson sales director Michael Gilbert.

“Food and beverage assets are always sought-after, but the added incentive of this sale was the location,” Mr Gilbert said of the Waterloo Pizza Hut.

“Waterloo is a popular inner-city location that is set to grow by 48.1% in population through government urban renewal programs.”

Three Nubco hardware stores in Tasmania were also sold at the Melbourne auction for between $2.25 million and $3.74 million.