Melbourne McDonald’s smashes record after selling for $4.7m
A McDonald’s outlet in Melbourne’s south-east has sold for $4.714 million on a yield below 3 per cent, setting a record for the return that small-scale investors are willing to accept for a foot in the popular fast-food chain.
The super-low 2.78 per cent yield reflects the investor appetite for such assets, with the Hampton Park outlet selling about $1 million above the seller’s price hopes.
The 2056-square-metre property at 59 Hallam Road was sold by a family-run investment group under the hammer and drew a crowd of almost 100 attendees. There were 33 registered bidders following about 800 inquiries during its sale campaign. It sold to an offshore buyer.
The Hampton Park property has a 20-year lease to McDonald’s, which includes fixed annual rental increases of 2.5 per cent and expires in 2043. It provides a net income of about $131,000 a year.
Globally recognised fast-food tenants like McDonald’s with long-term leases are fiercely fought for in the retail market because the assets have strong income security, so investors can “set and forget”, said JLL’s Dominic McGrath, who managed the campaign alongside Romanor Falconer and MingXuan Li.
“This was the second McDonald’s to ever transact on the market in Victoria in 10 years,” he told The Australian Financial Review.
“It’s a very rare club as well, because McDonald’s own a lot of their sites themselves. So it’s a combination of the security, but also it’s a rare opportunity to become a landlord to McDonald’s.”
The 2.78 per cent yield was the sharpest result ever achieved for a McDonald’s freehold investment nationally, an indication of how much private capital is chasing income security, McGrath said.
“Assets leased to McDonald’s are among the most tightly held asset classes in the country, and we anticipate this result will further drive appetite across the broader fast-food sector,” he said.
Ben Martin-Henry, head of private assets research at MSCI, said there had been an increase in sales of properties with fast-food chain tenants, particularly in the past five years, but McDonald’s sites rarely came up for sale.
“Everyone loves fast food. Everyone loves McDonald’s. If there’s a pretty safe investment, I’ll say McDonald’s is a pretty good one,” Martin-Henry told The Australian Financial Review.
“Retail is seeing an improvement, and we’ve tracked probably around $10 billion worth of retail sales so far this year.”
While the Reserve Bank decided to keep the cash rate on hold this week, the previous cuts have already increased investors’ disposable income, meaning they would be more likely to spend on retail again, Martin-Henry said.
“It’s probably a good time to get into a sector that looks relatively cheap compared to where it was six years ago,” he said.
