‘Flight to quality’ sees investors buy nearly $103m worth of ‘safe, secure’ assets
Burgess Rawson witnessed a ”flight to quality” across its three-day portfolio auction this week, with investors turning to the tried and tested childcare, retail and medical assets.
The appeal of ”daily needs tenants” which occupy childcare, retail and medical properties, along with built-in rent increases, drove keen interest in the auction, held in Sydney, Melbourne and Brisbane, despite rising interest rates and growing economic volatility. With an overall 81% clearance rate, the average yield for the 36 of 44 properties sold in New South Wales, Victoria, ACT, Tasmania, Queensland, South Australia and Western Australia with a blended yield 5.52%. The total volume was just under $103 million. Victoria had the best clearance rate of 91%, with only two of 22 properties unsold in the Melbourne event. Clearance rates of 75% and 70% respectively were recorded at the events in Sydney and Brisbane of properties across other states and territories.
Capital moving away from volatility
Burgess Rawson partner Shaun Venables said the Melbourne event attracted 139 bidders – more than the previous portfolio auction, in what was something of a surprise.
”It was a bit of an unknown, how the auction would go, given we knew an interest rate rise was coming, but it was the fullest room we’ve seen all year,” he said.
Since the June auction, interest rates have increased by 100 basis points, but the average Victorian yield decreased by 36 basis points.
”This simply shows the appeal of low-risk, high-performing assets. When a bump in the road, financially, comes along, we tend to see what we call a ‘flight to quality’ and that’s exactly what we’re seeing right now … investors putting a high value on long-term lease profiles,” Mr Venables said.
He said with many commercial investors only borrowing only 50% to 60% of the purchase price, the impact of rising interest rates isn’t being as keenly felt in the sector, compared to residential.
Investors are redirecting ”their capital from the volatility of other investment classes and turning to fundamentally sound, passive investments, just as we’ve seen in previous market cycles.”
Strong interest in centres is child’s play
Burgess Rawson partner Yosh Mendis said childcare centres drew the strongest competition in the Sydney-based portion of the auction on Tuesday, despite the number of registered bidders being down on the previous month. He pointed to a childcare centre in Blue Haven on a long-term lease to Affinity Education Group, which sold for $4,075,000 on a 5.11% yield, as a case in point. In the western Sydney suburb of Woodcroft, a childcare centre on a rare 18-year net lease to Young Academics ELC sold for $2,698,000 on a 4.51% yield after 262 enquiries.
”The market has seen some change, but we’re seeing consistent demand for particular asset types, especially in the essential services sectors, such as childcare, service stations, fast food, non-discretionary retail and government leased investments,” Mr Mendis said.
Back in Victoria, the Hei Schools childcare centre in the growing Geelong suburb of Waurn Ponds sold for $5,980,000 on a 5.79% yield while down the highway in Melbourne, the Busy Bees centre in Carrum Downs went for $5,400,000 on a 5.56% yield.
Retail results reach rare air
Retail assets were among the most hotly contested properties at the Melbourne event. Pakenham Fruit & Veg Market, for example, sold after 48 bids for $1,705,000 on a yield of 4.61% and Croydon Kofi Beans Café went for $1,770,000 after 40 bids, achieving a 4.37% yield. The $1,280,000 sale of a commercial building in Dinner Plain set an Australian yield record for a commercially leased property in an alpine region, selling at a yield of 5.53% according to Burgess Rawson. The previous alpine commercial yield record was 7.75%.
”Alpine regions are becoming year-round destinations, rather than seasonal, which is driving greater investment,” Mr Venables said. ”This, together with a lack of available land being released, is increasing the value of established commercial properties.”
Retail sales of note in NSW included a Mobil service station in Coffs Harbour sold for $5,275,00 on a yield of 5.50%, a 7-Eleven in Cessnock sold for $6,400,000 on a yield of 6.03%. The highest value sale of the Queensland portfolio was a mixed-use retail and commercial property in Bongaree on Bribie Island, which sold for $7,200,000 on a yield of 5.76%. In the Cairns suburb of Woree, a high-profile multi-tenanted freehold investment including medical rooms on the Bruce Highway sold for $3,400,000 on a yield of 5.91%.