A building leased to McDonald’s in the Newcastle suburb of Wallsend has sold to a local investor at auction for $9 million, in what is believed to be a record for a free-standing fast food outlet.
The result pips what is widely believed to be the previous record of $8.76 million, set by the 2016 sale of a KFC in Artarmon on Sydney’s lower north shore.
The McDonald’s sale was handled by JLL’s director of metropolitan sales and investments Dylan McEvoy and senior director of retail investments Sam Hatcher on behalf of the owner Haben Property Fund.
The property was purchased as part of Haben’s 2018 acquisition of the adjacent Wallsend Village neighbourhood centre from Stockland in an off-market deal reported to be worth $81 million.
Mr McEvoy said that the property had received 321 “genuine inquiries” during the campaign with the sale equating to a net yield of 3 per cent.
“McDonald’s investments are sought after for their low levels of risk during exposure to market downturns and recessions, in part due to their strong covenant and defensive sales base,” Mr McEvoy said.
The property was built in 2014 and is on a 4063-square-metre site at the corner of Cowper and Kokera streets.
It is leased to McDonald’s Australia on a 25-year agreement ending in December 2039. The net income is $402,820 a year with McDonald’s responsible for paying outgoings and maintaining the building.
“McDonald’s leases are one of the most desirable leases in the retail and fast-food asset market due to the quality of lease tenure and favourable lease structure, offering base rental increases throughout the term,” Mr McEvoy said.
The lease agreement incorporates a base rent figure and an additional “turnover rent” that is payable if the audited annual sales turnover of the store reaches a certain amount. On the base rent figure, the sale result equates to a yield of 3 per cent, but the yield figure jumps to 4.5 per cent when accounting for the additional rent generated by the store’s 2019 sales.
Approximately 11 kilometres from the Newcastle CBD, the Wallsend McDonald’s has 62 car spaces and is opposite the Wallsend Oval. The location delivers a high level of vehicle traffic, an important consideration for fast-food investors.
“Wallsend McDonald’s is ideally positioned to capture high levels of consumer exposure, and Wallsend is predominately a residential suburb that is supported by strong commercial and recreational centres,” Mr Hatcher said.
The strong result is yet another example of the yield compression taking place in the fast-food sector as investors chase assets with long-term leases and strong covenants that are favourable to landlords, according to Mr McEvoy.
“The demand for fast-food assets shows no sign of slowing down, with yields compressing and a growing appetite for tenants that are responsible for paying outgoings and building maintenance,” he said.
The sale comes after Newcastle became the first city in the world to open a drive-through-only KFC outlet, in Broadmeadow in November.
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