Investors pump up Sydney servo prices

Six service stations made up the bulk of a $53.6 million sale of commercial properties to wealthy investors and funds chasing higher-yielding, secure alternative real estate assets in Cushman & Wakefield’s latest Sydney portfolio auction.

The Woolworths Caltex-branded fuel and convenience assets across NSW, Queensland and Northern Territory sold individually under the hammer at yields ranging from 3.71 per cent to 6.25 per cent and for a total of $40.2 million. A further five sites holding child care centres, a hairdresser, dentist and a baker accounted for the remaining sales.

A seventh service station site remained under negotiation on Tuesday.

“The fuel and retail convenience sector continues to run hot,” Cushman & Wakefield’s head of national investment sales Michael Collins said.

“With an overwhelming level of interest in the portfolio, and a large number of active bidders, these assets set the pace for a very competitive auction.”

The sales on Thursday last week followed the Reserve Bank of Australia’s unprecedented step to formalise quantitative easing by pumping money into the economy through government bond purchases, as well as a separate reduction in the benchmark cash rate to 0.1 per cent.

The auction, held two days after the latest bout of monetary easing, had a 73 per cent clearance rate that pushed a majority of sites above reserve prices. It’s not clear how much the RBA’s moves increased the appetite of investors, but the auction shows one effect of record-low borrowing costs – they make commercial assets with guaranteed returns more attractive.

“Private and high-net-worth investors have continued their active search for yield during the pandemic and are targeting defensive investment opportunities backed by high-quality, long-term leases,” Mr Collins said.

“The low yields recorded across many sites reinforced the yield compression we are seeing among these types of assets and reflective of the lower for longer interest rate environment.”

The strongest result came in the $8.9 million paid for a service station at 400 Parramatta Road, in Sydney’s inner-west suburb of Burwood, pushing the yield down to 3.71 per cent, which Mr Collins called a “near record”. A service station in Chatswood sold on a 4.29 per cent yield and one in Byron Bay on a 4.41 per cent yield.

A service station in Brisbane’s Bowen Hills sold on a 5.96 per cent yield and one in Townsville on a 6.25 per cent yield, while one in Bakewell in the Darwin satellite city of Palmerston sold on a 6.11 per cent yield.