In the face of rising interest rates, cashed-up private investors have shown a voracious appetite for commercial properties, particularly childcare centers and fuel stations. As detailed in a report by The Australian Financial Review, this surge exemplifies the resilience and allure of bricks-and-mortar assets with long leases, making now an opportunistic time for sophisticated investors to consider diversifying their portfolios.

In a recent surge of commercial property investments, cashed-up private investors, including Self-Managed Super Funds (SMSF) trustees, have shown unwavering interest despite rising interest rates. According to The Australian Financial Review, these investors spent a staggering $108 million over three days of auctions in Sydney, Melbourne, and Brisbane. The appetite for commercial properties remains robust, especially those with long leases to reputable tenants.

Highlighting A Strong Market

Across the three days, 31 out of 41 properties were successfully traded, representing a clearance rate of 76%. These properties were primarily composed of small commercial assets valued below $5 million, which is the sweet spot for private investors. The yields ranged from 2.75% for a childcare centre in Mosman, Sydney, which sold for $4.41 million, to almost 10% for Ballarat’s historic Bluestone Nightclub, which was acquired for $3.05 million.

Notably, most of these properties were purchased either outright in cash or through low gearing levels, thereby minimizing the impact of interest rate hikes. This exemplifies a trend among savvy investors who are looking for reliable alternatives to residential properties.

Childcare and Fuel Stations Lead the Way

It was observed that childcare centres and petrol stations accounted for the lion’s share of sales, amounting to $40 million and $33 million respectively. Investors are attracted to these assets due to the long leases and large footprints they typically offer in areas with high underlying land values.

British fuel retailer EG Group was among the big winners, selling almost $25 million worth of assets. This includes an EG Ampol station with a fast food offering in Moreton Bay, which fetched the week’s highest price of $9.625 million, representing a yield of 5.7%. Childcare properties also saw significant investments. A Montessori Academy in Melbourne’s eastern suburbs sold for $6.9 million, generating a yield of 5.1%.

Reasons for the Surge

Ingrid Filmer, Chief Executive of Burgess Rawson, remarked, “Investors are seeking the certainty of bricks and mortar. They want somewhere to put their money and are certainly not going anywhere near residential property.” This statement underscores the prevailing sentiment amongst investors who are looking for stable and potentially high-return investments. Furthermore, Burgess Rawson childcare specialist, Adam Thomas, pointed out that increased childcare subsidies have added further strength to the sector.

Implications for Sophisticated Investors

For sophisticated investors, such as those Norfolk Commercial caters to, including SMSF trustees, family offices, commercial property syndicates, and institutional investors, this development suggests an opportunistic time to explore the commercial property market. With childcare and fuel stations emerging as profitable avenues, investors can look towards diversifying their portfolios with bricks-and-mortar assets that offer long-term security and favourable returns.

In conclusion, the surge in investment in small commercial properties, notably in childcare centres and fuel stations, highlights the resilience and attractiveness of this sector. As investors continue to pursue stable and lucrative opportunities, it is imperative to have a trusted and experienced partner. Norfolk Commercial, with its deep expertise and dedication to serving sophisticated investors, is uniquely positioned to provide the insights and services necessary for navigating this promising landscape.

Childcare and fuel drive commercial property investments
It was observed that childcare centres and petrol stations accounted for the lion's share of sales, amounting to $40 million and $33 million respectively. Investors are attracted to these assets due to the long leases and large footprints they typically offer in areas with high underlying land values.

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