Essential services trump interest rates for wealthy property investors
Investors shrugged off interest rate concerns and bid strongly on a portfolio of commercial properties at the Burgess Rawson portfolio auction in Sydney on Tuesday, sending initial yields below 5 per cent for essential services assets with long leases.
Childcare centres, petrol stations and a supermarket fetched the highest prices and lowest yields.
But the most popular property was a humble country pharmacy in Cootamundra, south-west NSW, which attracted 20 bidders and eventually sold for $725,000 on a yield of 5.5 per cent.
The highest price paid was $10 million after 32 bids for an IGA supermarket at Freshwater, near Manly. The yield was 4.8 per cent on initial annual rent of $480,000.
Even tighter was the 4.35 per cent yield achieved for a childcare centre at Albion Park, a commuter suburb south of Wollongong, which sold for $1.6 million.
Service stations attracted plenty of buyer attention, with $6.1 million paid for a 7-Eleven and car wash in Orange, central-west NSW, on a return of 5.6 per cent.
Burgess Rawson partner Yosh Mendis said 11 of the 12 properties sold at a clearance rate of 92 per cent, and that the average price paid was 11 per cent above reserve.
“Higher interest rates didn’t have an impact at all,” Mr Mendis said.
“We had just as many bidders at our auction today as we have had in the past and there was no impact on prices. These prices are the same we have achieved in our previous auctions.
“It’s a testament to the market, which is the strongest it’s ever been for long-term leased investment properties.”
Mr Mendis said regional yields, which tend to be significantly higher and the properties therefore more affordable, have compressed sharply in the past 12 to 24 months as demand for essential service asset classes has increased.
“It’s to do with the asset class, in particular, and the lease structure – I wouldn’t say it’s all due to the lower price point,” Mr Mendis said.
He added that all the buyers at the auction were high net worth private investors seeking secure cash flow.
“A lot of investors that we deal with now are looking at commercial property as their preferred investment vehicle,” he said.
“Most people who buy commercial property at the moment see it as the most stable investment vehicle, where they know exactly what their rent is going to be from day one.”