Childcare centres and retail investments on long leases were in hot demand at a sold-out commercial property portfolio auction last week, which generated almost $36 million in total sales.
Of the eight properties offered by real estate firm Stonebridge, three sold under the hammer, four before auction and one soon after being passed in.
The average yield was 4.9 per, just 80 basis points above the cash rate, highlighting the appetite among private investors for “safe haven” bricks-and-mortar assets amid uncertainty in other sectors.
“The strong yields are genuine evidence of the demand for property on long leases, especially childcare centres,” said Stonebridge partner Michael Collins.
Mr Collins said many buyers were paying with cash or at low levels of gearing.
Of the eight properties offered for sale, four were childcare centres. These sold for a combined $19.8 million on yields ranging from 4.5 to 5.1 per cent.
Among them, a modern childcare facility on Pittwater Road in Brookvale on Sydney’s Northern Beaches, offered with a new 20-year lease, received 25 bids before selling under the hammer. It was purchased by a Sydney-based investor for $6.77 million on a 4.9 per cent yield. The vendor was Joseph Abboud, chief executive of property investment company Trifalga.
The other three facilities, all of which sold before auction, comprised a brand new Imagine Childcare Centre at Maroochydore on Queensland’s Sunshine Coast ($6.4 million on a yield of 5.08 per cent), a Goodstart Early Learning Centre at Keilor in Melbourne ($3.05 million on a 4.46 per cent yield), and a G8 leased facility in Queanbeyan, outside of Canberra, which sold for $3.55 million on a yield of 4.98 per cent.
Referring to the Brookvale sale, Mr Collins said the Sydney childcare centre market was tightly held by high-net-worth investors.
“When something goes up for sale there is significant interest,” he said.
While childcare centre yields have expanded by about 75 basis points since interest rates started to rise, they have done so off a very low base, and well below the increased cost of funding. Mr Collins said.
“Childcare centres were selling on yields of 4 per cent during COVID,” he said.
An increase in yields generally implies a fall in values, but rising rents appear to be preventing any major correction, unlike the big valuation write-downs being reported across the office sector.
This was shown by essentially flat valuation updates provided last month by listed childcare centre landlords Charter Hall Social Infrastructure REIT (CQE) and Arena REIT, despite yields rising 12 basis points and 10 basis point respectively over the six months to June.
Higher rents alongside rising energy, wage and food costs are being passed on to parents with major operators like G8 and Goodstart Early Learning hiking their fees in the heavily subsidised sector.
Outside of childcare, the Stonebridge auction showed freestanding retail investments leased to major brands are also highly sought after.
In Pakenham in Melbourne’s south-east, a 492 square metre large-format retail store leased to auto-parts giant Repco until 2026 sold $605,000 above reserve for $2.4 million on a low 4.36 per cent yield.
Stonebridge partner Rorey James said 10 registered bidders participated in the Repco auction including five from Asia.
In Brisbane’s inner northern suburb of Stafford, a Yokohama-anchored tyre, motor repair and fishing retail outlet sold for $4.29 million on a 5.15 per cent yield. The property was offered for sale by Brisbane-based developer OneFin.
Back in Melbourne, a BP service station at Wollert in the outer northern suburbs, offered with a 15-year lease back to BP Australia, sold for $6.76 million on a 5.16 per cent yield.
A brand-new office development in Eagle Farm, Brisbane, leased for five years by Fujitsu Australia, sold under the hammer for $2.76 million on a 5.24 per cent yield.
Article source: www.commercialrealestate.com.au