‘Strong and stable’ childcare and familiar fast food to appeal in key portfolio auction

One of the first major portfolio sales of freestanding commercial property on the eastern seaboard since the federal election is expected to highlight investors’ voracious appetite for the ‘known quantity of fast food’ and the ‘strong and stable’ childcare sector.

Headlining Stonebridge’s national portfolio auction on July 6 is a modern KFC site on the NSW south coast, a newly built Taco Bell drive-through at Beenleigh in Brisbane, a World Gym at Stafford in inner Brisbane on a significant landholding and a childcare centre located in one of Australia’s fastest-growing corridors in Sydney’s Gledswood Hill.

The portfolio, featuring 16 metro and regional properties spread across Sydney, Melbourne, Brisbane, Orange, Toowoomba and Hervey Bay, also includes a blue-chip Woolworths supermarket in Bomaderry on the NSW south coast, a strong performing United fuel and convenience retail outlet in Orange and a premium Bridgestone tyre and auto investment in Brisbane’s tightly held logistics precinct of Pinkenba.

Stonebridge partner Tom Moreland said demand for blue-chip freestanding investments within resilient and “essential” industries appears to be holding up in the current climate, as investors seek passive income security and growth.

“The 16 assets are underpinned by long-term leases to some of Australia’s most successful and sought-after tenant covenants, with each of the properties offering attractive annual rent increase structures, providing a security blanket against inflation in the current economic environment,” Mr Moreland said.

Childcare more appealing, post-election

REA economist Anne Flaherty said increased support for the childcare sector flagged by the federal ALP ahead of its election will make childcare assets, like the one in Gledswood Hill in the upcoming Stonebridge portfolio auction, even more attractive to investors.

“We saw an absolute surge in demand for childcare centres post the start of the pandemic and what drove that was investors looking for steady, reliable income streams,” she said.

“While we’re pretty much on the other side of the pandemic, we still remain in very uncertain times – with inflation rising and interest rates on the up – so investors are becoming even more focused now, if that’s possible, on getting into assets and sectors that are going to withstand the storm. And childcare is seen as strong and stable.

“The fact the now-government said they are going to put more money into childcare during the election will be good for the sector and that in turn will benefit investors. It’s increasing appeal,” Ms Flaherty said.

The Taco Bell and Preeces sit on a 2,596sqm site with 27 car parks and new drive-throughs finished in 2020. Picture: realcommercial.com.au/for-sale

She said larger institutional investors will continue to be drawn to the sector, such is the appeal and low yields on offer.

Fast food outlets, another category that did well during COVID, also remains high on investors’ wanted list, Ms Flaherty said, as it’s a known quantity.

“A property that has a very well-known tenant, like a Taco Bell or KFC, will be more appealing because investors know what the tenant looks like, what the business looks like, especially if it’s in a regional area that’s getting good population growth or has a growing tourism market, which will help the success of the tenants.”

High inflation hitting commercial property investors

Scott O’Neill, the founder of buyer’s agent firm Rethink Investing, said among his clients, the demand for childcare investments remains very strong, especially among high net-worth investors.

The World Gym at Stafford has a significant membership base. Picture: realcommercial.com.au/for-sale

“At a time when the cash returns from term deposits are at very low levels, it’s important for investors to seek higher incomes.

Also in a high inflation environment like the one we’re in right now, leveraging into low-risk commercial investments makes a lot of sense,” he said.

Futuro Childcare, in the growing Sydney suburb of Gledswood Hills, offers a 10-year lease until 2042 and fixed annual rent increases. Picture: realcommercial.com.au/for-sale

Stonebridge partner Michael Collins said the eyes of high net-worth individuals are certainly on the commercial property sector more broadly.

“We continue to witness significant demand from high net-worth individuals sitting on large cash reserves. These investors are taking a long-term view, as assets they acquire often become intergenerational in nature,” he said.

“Accordingly, when quality property is put to the market, there remains strong appetite amongst those looking to acquire trophy commercial property, generating secure long-term cash flows from the nation’s strongest performing tenant groups and sectors,” Mr Collins said.