Investors drawn to service stations and childcare centres for ‘essential’ reasons

Service stations and childcare centres – typically found in strategic locations, with quality tenants on long leases, providing good returns – have long been at the top of commerical investors’ wish lists. But the unpredictability of the past two years has seen their desirability soar to new heights.

According to industry experts, the hunger for such “safe harbour” investments has been evident throughout 2021 and is expected to be on show again in Burgess Rawson’s December portfolio auctions, which include 15 fuel and convenience assets and 13 childcare investments across metropolitan and regional Australia.

But it won’t be just established commercial investors vying for the fuel stops and childcare facilities.

Thanks to the current combination of cheap money, record-low residential property yields and stock market volatility, a number of commercial first-timers are also expected to be in the frame.

Covid shone light on ‘essentials’

REA economist Anne Flaherty said the already well-established appeal of service stations and childcare centres has increased because of Covid.

“We’ve seen investors really looking to target ‘essential retailers’, such as service stations, as they continued to operate and be important during lockdowns,” Ms Flaherty said.

“And when it comes to childcare centres, we’ve seen them continue to perform extremely well too, sometimes with yields as low as 4% – and in the commercial space, the lower the yield, the better – which is surprising. Their long-term prospects, given how vital childcare is to the economy, are being recognised with strong demand.”

Dr John Sturgeon, discipline leader and course co-ordinator for real estate and development at the The University of Queensland Business School, said essential service tenants provide investors with an alternative to current low-yielding cash investment opportunities, volatile share market returns and elusive residential investment opportunities.

“A risk-adverse sector providing secure and stable incomes and long-term capital growth prospects is sure to be sought-after,” Dr Sturgeon said.

He said convenience assets are considered “recession-proof grade” because “no matter how bad things get, we all need to use these assets” and childcare centres appeal as they’re linked to Australians’ ability to be part of the workforce.

Passive profit appeals

Burgess Rawson partner Shaun Venables said the fuel and childcare assets in the company’s December portfolio auction events – made up of 74 properties ranging in price from $500,000 to $21 million – should be hotly contested.

The sale includes a Viva Energy Australia site in the Melbourne suburb of Dandenong, which has a secure 15-year lease to 2030, with options to 2045; an internationally listed fuel giant on a dominant land holding in Cootamundra in regional New South Wales; and childcare centres in Brunswick in Melbourne, Sydney’s Frenchs Forest and Deception Bay in Queensland.

Mr Venables said such investments, which have been able to survive and thrive during unpredictable conditions, were attractive to passive investors in particular.

“Such investors don’t want to be hands-on. They want to put their investments to one side, forget about them and collect their rent.”

New investors in the picture

Burgess Rawson national head of agency Adam Thomas said underbidders from the firm’s November portfolio, along with demand from new investors entering the market, will drive sales.

“We have seen plenty of interest throughout the year from investors that have not typically looked at commercial investment,” Mr Thomas said.

“Quality property stands the test of time. Investors are playing the long game, seeing these investment opportunities as generational holdings. This has resulted in incredible demand that has seen us add a third day to our national portfolio schedule, growing our portfolio.”

Along with fuel and childcare assets, the auction portfolio includes medical, industrial, fast food, government and retail investments, with high-profile tenants such as 7-Eleven, United, Hungry Jack’s, Taco Bell and Officeworks.

Auctions will be held in Sydney at the Sydney Opera House on 14 December; Melbourne at the Crown Casino on 15 December; and Brisbane at the Hilton Brisbane on 16 December.