Pictured above: Burgess Rawson's listing for 309-315 Princes Highway, Colac
Burgess Rawson’s highly anticipated Convenience Retail Industry Insights report has found cap rates in this sector have sharpened in Q1 2023 as investors seek security and safety in long-term leases, in a time of market volatility and increased interest rates.
The commercial agency, best known for its renowned portfolio auction program, has compiled a 28-page report that provides of-the-moment research on Australia’s convenience retail landscape. Undoubtedly one of the most qualified agents to talk about the state of the market, Burgess Rawson Partner Jamie Perlinger, said the data offers some surprising insights into market activity, with the data indicating what we can expect to see in the next 12 months.
Key data includes a reported average 90 basis point premium for assets located in metro locations as opposed to regional.
“Still, unlike other industries, we’ve seen investors focus on investment fundamentals such as operator, lease terms and tenant responsibilities. In fact, convenience retail is an asset class where we see most cross-border investment, as buyers look even further afield for additional upside like stamp duty savings."
Mr Perlinger added that the Burgess Rawson data showed a 50 basis point difference between long and short-term leases, further cementing the demand for defensive, set-and-forget investments. This is despite longer leases commanding a higher rent, on average $16,000 per annum more.
According to the report, in 2022, Burgess Rawson transacted 40 convenience retail assets, with a total value of $216 million. In comparison, 2021 saw 32 sales representing $156 million.
Burgess Rawson Partner, Yosh Mendis commented on the data further, saying that 2022 also saw an increase in listings which led to rising cap rates, with the 2023 average currently at 5.49%, a contraction from its peak of 6.35% in Q4 2022.
“Our research showed a clear correlation between supply and median yield achieved on sales. As a result of supply peaking to 51 listings in October 2022, the cap rates softened briefly. This correlation has continued into 2023 and we’re now seeing supply correct itself, as are cap rates.”
Mr Mendis said the Australian convenience retail industry has historically been a dynamic and competitive one, with big-player innovation shaping the landscape we recognise today.
“Since 2017, the annual number of sites has been steadily increasing with 2023 alone seeing a net increase of 73 new sites delivered to the market.
“Total sites in 2023 is nearing 7,000 as compared to the 2017 site count of 6,500.
“The sites now have a focus on centrality, innovative service delivery, and high-tech equipment that minimises environmental damage and exit costs,” he said.
When asked about the future of ‘traditional’ fuel, Jamie Perlinger commented that new petrol-based automotive sales continue to grow across the nation.
“The Federal Chamber of Automotive Industries found that Australia’s automotive industry delivered 97,251 vehicles during Q1 2023 with year-to-date sales increasing by 2.5 per cent, indicating the underlying strength of the market.
“While some might predict that EVs are set to replace petrol, the significant shortcomings of alternative energy like electric or hydrogen are still too great to predict widescale adoption in Australia.
“Even for high adopters like Norway, where EVs make up 80% of all new vehicle sales, they still consumed 31.8 million litres of oil per day in 2021.” According to Mr Perlinger, key players in the industry are investing heavily, indicating the longevity and resilience of the asset class.
“Major ASX companies like Viva Energy are continuously investing and innovating across the board, demonstrating their confidence in the industry’s future. It’s these high-quality tenants that typically occupy convenience retail sites, and that security coupled with additional investment fundamentals such as long-term leases and high-profile sites, make this sector one to seriously consider for any property portfolio,” he said.
