2. As demand exceeds supply for investment properties such
as service stations, investment yields are anticipated to
come under further downward pressure. A combination of
low interest rates and private investor’s sentiment in diversifying
their portfolios will further encourage this continued investment.
Investment into this emerging asset class has
not been a NSW phenomenon with increases in
investment across the country evident. Looking at
NSW alone the investment growth in the period between
2011 and 2015 has been particularly robust. 2015 represented
the greatest level of sales turnover recording $426.383 million
or 223 transactions; this is up 4.94% on the prior year’s
volume. Interestingly is the split between assets in Metropolitan
and Regional locations, demand for these types of assets with
strong lease tails knows limited geographical boundaries with
both locations yielding strong results. During 2015, 60.70%
of sales were recorded in Metropolitan Sydney with the
remainder $167.565 million sold in Regional areas of the state.
This has shown one of the largest splits to Regional sales as
Metropolitan sales historically having typically ranged between
65% and 75%. Further to this are the limited transactions
recorded in 2016 to May, where only 40.13% of all sales
($62.737 million) were represented by metropolitan areas,
this highlights the strong demand for these types of assets
regardless of geographical location.
Volume of sales, NSW Investments
Metro v Regional
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
$450,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Metro Regional
Source: Ray White (*to May 2016)
Over the last five years a new asset class has somewhat emerged across the
commercial property market. Investors looking to secure long term “set and
forget” investments has driven interest in a range assets which were not previously
considered as prime. These assets take the shape of service stations, fast food
outlets, stand-alone liquor or supermarkets, banks or other property which provide
an attractive long term tenant with fixed rental increases.
These investments are more income stream driven
rather than location or type of assets which has had
growing appeal for a variety of private investors. High
net worth individuals, mum and dad investors banding
together to form syndicates as well as private super
funds are the key investors in these assets, who are
seeking stable, long term returns with known tenants
who maintain their property. This gives the investors
the benefit of regular and steady income with none
of the outgoings usually associated with this type
of investment, with the exception of Land Tax.
Demand is excelling supply for investment properties such as
service station assets in the current economic climate. Buyers
are keen to diversify their property portfolios, which is a further
factor encouraging investment plus record low interest rates.
A number of portfolios of service stations, fast food outlets and
banks have been put to market since 2011 where there was
a strong uptake of investment activity. During this time we have
seen yield levels show some volatility, to compress greatly down
to new lows. Interest in these investments is greater than ever
into 2016 particularly given the high increases to the residential
market, record low interest rates and with limited stock available
to market, this year will be a telling time for this new asset class.
3. Average Yields (%),
NSW Investments
Metro v Regional
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Metro Regional
Source: Ray White (*to May 2016)
Investment yields for these types of assets have
shown considerable range and in more recent times
strong levels of consolidation. With financing at record
rates and returns for other investment classes such as equities,
shares and the residential market yielding lower returns, greater
competition has emerged for these assets driving yields down
to new levels. The average yield result for the Metropolitan area
in 2016 to May is 5.43% with a range between 5.00% and
6.50% (depending on the type of asset and its lease covenant).
This average result is down from 5.82% in 2015, 6.14% in
2014 and 7.02% in 2013. The Regional area has been a little
more stable in its reduction over the past two years after falling
from highs of 8.00% in 2012, during 2016 the average has
been recorded at 6.75% however within a vast range between
5.00% and 9.75%. The most notable being the $3.4million
sale of Hungry Jacks, Griffith in April which achieved a yield
of just 5.03%. The asset with seven years remaining on
a 10 year lease and was hotly contested amongst private
investors particularly, given the further 10+10+10 year option
in place and fixed 3% rental increases per annum.
As the outlook for interest rates is one
of compression and stabilisation, it is
anticipated that more investors will be
seeking new and secure asset classes to
invest in. In the past smaller commercial
holdings such as strata offices, strip shops
and industrial factory units were in demand
given their higher yield although their risk
profile was high.
With growth in residential real estate (particularly in Sydney)
putting further pressure on already low yields, savvy investors
have been looking for a more long term “safe” investment class.
These properties which offer long lease tails to multinational
tenants in many cases and their limited outgoing expense
have made these properties an attractive proposition both
in Metropolitan and Regional areas. Demand is unlikely
to dampen over the short term and increase in competition
amongst buyers is likely to result in further yield compression
throughout the remainder of 2016.
Table of recent transactions
Address Type Sale Date Sale Price (mill) Land Area (sqm) Yield
16 Sherriff Street, Forbes Bank Jun-16 $1.150 1,044 6.56%
102 Church Street, Glen Innes Service Station May-16 $1.860 2,030 7.85%
2/26 Kelly Street, Scone Fast Food May-16 $5.025 4,224 6.23%
1049 Princes Highway, Engadine Bank May-16 $4.650 557 3.96%
49–53 Jondaryan Avenue, Griffith Fast Food Apr-16 $3.400 2,400 5.03%
2–22 East Street, Murrumbateman Service Station Feb-16 $4.100 2,712 7.92%
Source: Ray White
4. Research
Vanessa Rader
Head of Research
T (02) 9249 3724
M 0432 652 115
E vrader@raywhite.com
Ray White Commercial (NSW)
Michael Ajaka
Director
T (02) 8016 3807
M 0408 488 655
E majaka@raywhite.com
_Know How
Research
The information provided in this report is in good faith and has been derived from sources
deemed accurate. The reproduction of any information herewith is strictly prohibited without
the prior consent of Ray White Commercial. This is general information only and should not
be considered a comprehensive statement on any matter and should not be relied upon as
such. Neither Ray White Commercial nor any persons involved in the preparation of this report
accepts liability for its contents. All forecasts and estimates are based on a set of assumptions,
which may change. Refer to the terms and conditions available on the Ray White Commercial
website http://www.raywhitecommercial.com/terms-and-conditions/ raywhitecommercial.com
