Essential services are set to dominate Burgess Rawson’s February portfolio auction, with strong yields and low-risk profiles continuing to attract a growing and diverse pool of investors chasing alternative income streams.

The strength of the sector shows no sign of weaning, industry experts say, thanks to high quality tenants locked into long leases.

The portfolio includes national brands, service stations, childcare centres, medical assets and supermarkets.

Headlining the auction is a trio of leasebacks to retailer National Tiles, which offer new long-term leases, rare security with a six-month bank guarantee and guaranteed rental growth.

Also for sale are stores Officeworks and The Good Guys, both in Mildura, a Liquorland in the NSW town of Tamworth, and an IGA supermarket in Sydney’s Freshwater.

In total, 45 properties will go under the hammer at Burgess Rawson’s 150th portfolio auction, which will take place across three days in Melbourne, Sydney and Brisbane, with five properties seeking expressions of interest.

Burgess Rawson Partner Raoul Holderhead, who has been with the business with all 150 auction campaigns, says enquiry numbers have been “absolutely staggering across the board’.

“They’ve broken all records,’ he said.

Chief economist at real estate firm Knight Frank, Ben Burston, said the market confidence experienced in 2021 is expected to hold up this year.

“There’s still a lot of confidence in the market given the outlook for economic growth is quite strong,’ he said.

“I would expect the market to continue to be well supported.’

Essential services and niche assets remain the darlings

After a busy year of sales, PropTrack economist Anne Flaherty said the market is still seeing plenty of service stations and childcare centres transact across the board.

“Over the past 12 months service stations have seen more yield compression than any other asset class. This suggests a really strong uptick in demand so I would expect that asset to do well,’ she said.

There are four United Petroleum service stations in the portfolio, three in NSW and one in Victoria, while a Shell offered in Warburton, Victoria, comes with a new net lease to 2026 with options to 2031.

Competition also remains fierce for childcare assets, which offer a secure income, Mr Burston said.

“That doesn’t necessarily mean a really long lease length, but the prospect of ongoing strong demand and strong income returns,’ he said.

“That is attractive at the moment. Investors are looking for income security and diversification.’

The portfolio features a handful of early learning and childcare centres in Melbourne and Sydney, with Journey Early Learning in Lara, Victoria, expected to achieve the auction’s highest price of around $10 million.

The centre comes with a new 15-year net lease with options to 2066 and annual 3% rent increases.

Mr Holderhead said the portfolio also includes properties selling for sub-$1 million, which continue to attract plenty of mum and dad investors.

These properties include a vet clinic in Burnie, Tasmania, which comes with dual street frontage and a secure 15-year lease to 2030 with options to 2045; three podiatry clinics in Gippsland all offering secure seven-year net leases, and the office of Tony Pasin, federal member for Barker, in Mount Gambier, which is expected to fetch around $800,000.

Smaller investors facing greater competition

Ms Flaherty says many private investors are moving to commercial property for the first time, wary of recent stock market volatility and turned off by low yields in residential property, where price rises have far outstripped rent growth.

But this growing number of private investors is also joined by larger numbers of institutional investors such as big listed funds and REITs.

“A few years ago the main kinds of investors who would be looking for assets in these kinds of portfolios would have been smaller, private investors. But now, because these types of assets are performing extremely strongly, they’re relatively recession-proof, they have long lease terms in place, you’re essentially buying an income stream,’ she said.

“We know that in the current interest rate environment, getting income has never been so difficult so we’re starting to see bigger players enter into these properties.’

Ms Flaherty said more and more offshore investors are also flooding the buyer pool, accounting for more than a third of commercial property sales.

“Australia has really outperformed comparable countries around the world throughout the pandemic. We’re seen as a stable market and a safe investment destination,’ she said.

“We’re seeing growing demand from offshore investors competing with domestic buyers for commercial property.’

Auctions will be held in Sydney at the Sydney Opera House on 22 February; Melbourne at Crown Casino on 23 February; and Brisbane at the Hilton Brisbane on 24 February.

Caroline Riches, Real Commercial