Large retail and medical steal the show at Burgess Rawson portfolio sale

After months of remote auctions, investors filled the rooms at Burgess Rawson’s first portfolio auctions of the year, with pent-up hunger resulting in solid prices for essential services, in particular large format retail and medical.

Of the 41 properties listed for sale in the Sydney, Melbourne and Brisbane portfolios, 32 sold including three prior, logging an overall clearance rate of 78%. Combined sales totalled $134 million on a blended yield of 5.03%.

National partner at Burgess Rawson Billy Holderhead said sales “surpassed expectations across the board”, suggesting the healthy demand seen in 2021 would continue, he said.

But he admitted the clearance rate of 73% in Melbourne was lower than expected and “a bit of an anomaly” given the blended yield of 4.51% was a record for a Burgess Rawson Melbourne auction.

Burgess Rawson auctioneer David Scholes leads the Melbourne portfolio auction at Crown Casino, 23 February 2022. Picture: Burgess Rawson

While there was solid participation from phone and online bidders, 42% were present in the rooms, he said.

PropTrack economist Anne Flaherty said it was no surprise that demand for essential service assets remained elevated.

“Buyers are still looking for recession-proof, pandemic-proof assets that provide a good solid income, low risk but still with that good return,” she said.

Large format retail offering stability during inflationary times

Large format retail properties were the star performers, underpinned by high-quality tenants locked into long leases, with all five in the Melbourne portfolio raking in a combined total of $28.46 million.

The Good Guys in Mildura sold for $4,200,000 on a yield of 3.75%, while an Officeworks in Mildura achieved $2,885,000 on a yield of 4.73%.

A trio of leasebacks to National Tiles in Victoria achieved $21,375,000 in sales on a blended yield of 3.98%.

This property at 134-136 Deakin Avenue, Mildura, offers a brand new five-year lease plus options to extend to 2042. Picture: realcommercial.com.au/for-sale

Meanwhile six bidders battled for retailer Haymans at Currumbin Waters on the Gold Coast, which sold for $1,908,000 on a 4.46% yield.

Ms Flaherty said commercial properties with long leases and rent increases can act as a “good hedge” against soaring inflation, which could push demand still higher this year.

“This is important because in commercial property, rents increase in line with inflation a lot of the time,” she said.

Chief economist at real estate firm Knight Frank, Ben Burston, said the results showed sustained demand for well-let real estate, with investors seeking income stability.

“Income security is perhaps in some cases trumping future growth expectations as the main driver of investor demand,” he said. “Not only lease length but also strength of covenant and the ability to increase rents if inflation proves to endure and be higher than expected.”

Surging demand for childcare and medical

The highest sale across all three portfolio auctions was Advance Childcare in Melbourne’s Watsonia North, selling for $11,800,000 on a 4.49% yield.

Busy Bees preschool in Seaford, Melbourne, sold for $2,325,000 on a yield of 3.92% while Busy Bees in Picton, outside Sydney, sold for $3,290,000 on a 4.38% yield.

Investors also came out in force for medical investments.

A medical centre in Mermaid Beach on the Gold Coast scored the highest price of the Brisbane auction, selling for $6,125,000 on a yield of 4.98%, while six bidders fought for a clinic in Marooka, Queensland, which sold for $2,975,000 on a 6.63% yield.

One of the most impressive sales was I-Med Radiology Clinic in Shepparton. Thirty-five bidders pushed the property 40% above reserve to $1,465,000 on a 3.17% yield.

This I-Med Radiology clinic at 55 Graham Street, Shepparton, offers a five-year lease with options to 2038. Picture: realcommercial.com.au/for-sale

Ms Flaherty said medical properties have seen surging demand on realcommercial.com.au, with the incidence of “medical” in searches 153% higher in 2021 compared to 2020.

“The healthcare and social assistance sector is predicted to add more jobs to the Australian economy than any other sector by 2025,” she said. “Healthcare tenants are seen as highly desirable.”

Domestic buyers seeking opportunities in the regions

The portfolio auction also indicated an ongoing love for the regions.

Eight properties that sold across regional Victoria, NSW and South Australia recorded a blended yield of 4.61%, while of five properties selling sub 4%, one was in Shepparton and another in Mildura.

“It reinforces how good COVID has been for regional investment and commercial investors are following their noses,” Mr Holderhead said.

The profile of buyers was typically domestic private investors, many with a pent-up appetite having lost out previously, Mr Holderhead said.

“There’s a lot of money that’s unsatisfied.”

Mr Burston acknowledged the spread of locations was “broad”.

“We’re seeing people being prepared to look outside the major cities and strong investor demand in these smaller towns,” he said.

Ms Flaherty said essential assets have typically been attracting domestic buyers.

“Offshore capital tends to focus on Sydney and Melbourne, whereas local buyers know their suburbs, know their regions really well and they can see those opportunities.”