Investors turn to fast food and childcare assets

Drive-through fast food, medical, childcare, hotels and large format retail premises are dominating the commercial investment market as the most highly-sought assets as investors look for stability.

Burgess Rawson Chief Executive Officer Ingrid Filmer said investors were being driven to tangible ‘bricks and mortar’ assets with those that would normally invest in residential property turning to the commercial market.

She said five asset types dominated sales in 2021, including fast food, medical, childcare, large format retail and hotel/liquor premises.

“The drive-thru fast food sector is a clear example with sales volumes soaring 93 per cent year-on-year,” Ms Filmer said. 

Burgess Rawson Partner Billy Holderhead said investors had been heavily focused on freehold investment properties leased to essential services and businesses that had been able to trade consistently over the past few years.

Mr Holderhead said in 2020 drive-through fast food properties accounted for 11 sales worth $49 million but in 2021 there were 21 sales worth $94.6 million.

“Essential services or businesses that have been able to pivot, like fast food who couldn’t open their dine-in restaurants… but their drive-through services have done extremely well,” he said.

“Uber Eats has played into the hands of the major fast food chains and savvy investors have recognised this.”

Mr Holderhead said increased supply meant yields had softened slightly to about 4 per cent, but emphasised that investors who bought in 2020 “bought cheap”.

Overall, Burgess Rawson recorded a standout 2021 across its consolidated eastern seaboard business, selling 364 properties for a combined value of $1.784 billion. 

This was up from 184 sales valued at $574 million in 2020.

Ms Filmer said the company recorded 168 sales worth $680 million in the first half of 2021 but this climbed to 196 sales valued at $1.156 billion in the second half of the year.

“It was a huge shift in the market,” Ms Filmer said.

“In 2020, many vendors were watching the market rather than divesting.

 “Meanwhile, the demand for high-quality, defensive assets only grew. For instance, our 7-Eleven portfolios back in October 2019 and February 2020 resulted in many unsatisfied bidders who were highly motivated to invest.

“Fast forward 12 months and vendors took action, bringing investments to market,” she said.

Mr Holderhead said other sectors, including fuel, childcare and big-box retail, continued to perform strongly.

“It replicated in other sectors like fuel and childcare, where the average yield has come down quite dramatically despite a lot more supply,” he said.

Ms Filmer said the group’s Portfolio Auctions generated the most sales, climbing from 66 sales worth $241 million in the second half of 2020 to 174 sales valued at $806 million in the second half of 2021.

She said the growth and expansion of the Queensland property market had played a key role in investor demand for essential services. 

She said historically, Burgess Rawson typically sold freehold investment properties to Melbourne or Sydney-based buyers, but more recently Queensland investors had beaten their southern counterparts, with 80 per cent of drive-through fast-food sites being purchased by local private investors, compared to 50 per cent in 2020. 

Mr Holderhead noted that the weakest areas of the market continue to be where tenants have been unable to trade.

“It’s only really been properties like certain sectors of retail, health and hospitality where tenants haven’t been able to trade, where buyers have been more cautious,” he said.

According to Mr Holderhead, the outlook for the commercial space is still strong.

“We’re pretty confident in the foreseeable future that conditions will remain the same, if not better,” he said.

“We’ve got auctions this week and now that everyone has to pre-register, we have an objective set of data that tells us there’s going to be pretty good competition.

“We’ve got some leasebacks coming up for National Tiles, who have powered through the pandemic thanks to the DIY boom, and also medical properties all with good interest. So we’re expecting more of the same.

“Late last year, more educated buyers took a few cues from other economic factors, that the cost of debt might increase early in 2022. But the language out of the RBA in the new year has changed slightly. 

“Investors are now confident there won’t be any rate increases until very late this year at the earliest, so we are still fairly bullish about the commercial freehold investment market.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.