In what has become a familiar story in the face of sharemarket volatility and global economic ructions since the pandemic, private investors again sought the safety of brick-and-mortar assets providing annuity-style income streams via long leases to established brands, with the added bonus of strong underlying land value.
After all six properties on offer sold under the hammer at Tuesday’s Sydney auction for $17.5 million (including an industrial facility in the ACT leased to glassmaker Viridian which fetched $11 million on a 5.5 per cent yield), Wednesday’s auction in Melbourne generated a 95 per cent success rate as 19 out of 20 properties sold on the day for a combined $55.9 million.
“Vendors are prepared to meet the market and the purchasers are out there to buy. When you have those two things, you get a great result like this,’ said Ingrid Filmer, chief executive of agents Burgess Rawson which puts together the regular series of portfolio auctions.
While most of the properties for sale offered fixed annual rent increases of 3 to 4 per cent – below the current rate of inflation which hit 7.3 per cent in the September quarter – Ms Filmer said this was not a primary consideration for buyers.
“What investors are focused on is the length of lease, the quality of the tenant and the underlying land value.’
In any event, she said, inflation had most likely peaked and was not expected to stay this high over a long period – the average length of lease was nine years at Melbourne’s portfolio auction.
“Landlords have not necessarily been winners with rent increases tied to inflation, given CPI was only 1.1 per cent not that long ago [in the March quarter],’ she said.
While the average yield rose 52 basis points to 5.38 per cent this week compared with the previous portfolio auctions in September, Ms Filmer noted that interest rates had risen by 75 basis points over that time period.
Fast food outlets were especially sought after at Wednesday’s auction at Crown Casino including neighbouring Carl’s Jr and Taco Bell drive-thru restaurants on the Princes Highway in Beaconsfield in Melbourne’s outer south-eastern suburbs.
Offered with a brand new 12-year lease to the global greasy burger chain, the Carl’s Jr sold for $5.454 million on a 4.4 per cent yield while the Taco Bell restaurant, offered with a 10-year lease to ASX-listed operator Collins Food, sold $3.82 million on a 4.5 per cent yield.
Also whetting the appetites of buyers was a café in Epping in Melbourne’s north which sold for $1.05 million on a yield of 4.9 per cent, having been offered with a new 10-year lease.
Rounding out these tasty offerings, a Burgertory restaurant in Mentone in Melbourne’s bayside that came with a new 10-year lease back to the fast-food operator (which has 16 outlets across the city) sold for $940,000 on a yield of 5.4 per cent.
Ms Filmer said fast food investments, considered an essential service during the pandemic, were performing well amid a lack of supply in the market.
Also in hot demand on Wednesday were childcare centres and petrol stations leased to the likes of G8, BP and United, while a Goodyear Tyre outlet in Hamilton in regional Australia generated 76 bids before selling 13 per cent above its reserve for $1.13 million on a 5.6 per cent yield.