Drive-thru fast food, medical services, child care, hotels and large-format retail dominate the commercial investment market as the most sought-after assets as investors seek stability.
Burgess Rawson chairman and chief executive Ingrid Filmer said investors were being pushed into tangible “bricks and mortar” assets as those who would normally invest in residential real estate turn to the commercial market.
She said five types of assets dominated sales in 2021, including fast food, medical, child care, large-format retail and hotel/liquor premises.
“The fast food drive-thru sector is a clear example of this with sales volumes up 93% year-over-year,” Ms Filmer said.
Burgess Rawson partner Billy Holderhead said investors had focused heavily on freehold investment properties leased to essential services and businesses that had been able to trade steadily over the past few years.
Holderhead said that in 2020, drive-thru restaurants 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, such as fast food that have not been able to open their restaurants on site … but their drive-thrus have done extremely well,” he said.
“Uber Eats has played into the hands of the big fast food chains and savvy investors have recognized that.”
Mr Holderhead said the increased supply meant yields had fallen slightly to around 4%, but pointed out that investors who bought in 2020 “bought low”.
Overall, Burgess Rawson had an outstanding 2021 across its consolidated East Coast business, selling 364 properties for a combined value of $1.784 billion.
That figure 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 that number dropped to 196 sales worth $1.156 billion in the second half.
“It was a huge shift in the market,” Ms. Filmer said.
“In 2020, many vendors were watching the market rather than divesting.
“During this time, the demand for high-quality defensive assets has only increased. For example, our 7-Eleven portfolios in October 2019 and February 2020 resulted in many dissatisfied bidders who were highly motivated to invest.
“Fast forward 12 months and vendors have taken action, bringing investment to market,” she said.
Mr Holderhead said other sectors, including fuel, childcare and big box retail, continued to perform well.
“It’s been replicated in other sectors like fuel and childcare, where the average yield has dropped quite dramatically despite much greater supply,” he said.
Ms Filmer said the group’s portfolio auctions generated the most sales, rising from 66 sales worth $241 million in the second half of 2020 to 174 sales worth $806 million in the second half of 2021.
She said the growth and expansion of Queensland’s property market had played a key role in driving investor demand for essential services.
She said that historically Burgess Rawson typically sold freehold investment properties to buyers based in Melbourne or Sydney, but more recently Queensland investors had beaten their southern counterparts, with 80% of sites in drive-thru fast food purchased by local private investors, up from 50% in 2020.
Mr Holderhead noted that the weakest areas of the market continue to be where tenants have been unable to negotiate.
“It’s really just properties like certain retail, healthcare and hospitality sectors where tenants haven’t been able to trade, where buyers have been more cautious,” he said.
According to Mr. Holderhead, the outlook for commercial space is still strong.
“We are quite confident for the foreseeable future that conditions will remain the same, if not better,” he said.
“We have auctions this week and now that everyone has to register in advance, we have an objective set of data that tells us there’s going to be pretty good competition.
“We have upcoming sale-leasebacks for National Tiles, which has weathered the pandemic thanks to the DIY boom, as well as medical properties, all with good interest. So we expect more of the same.
“At the end of last year, more educated buyers took some hints of other economic factors that the cost of debt could rise at the start of 2022. But the language of the RBA in the new year has changed slightly.
“Investors are now confident that there won’t be a rate hike until very late this year at the earliest, so we’re still quite bullish on the commercial freehold investment market.”