The Convenience Retail Industry Insights report from Burgess Rawson, revealed that cap rates within this sector have tightened during Q1 of 2023.
Although the convenience retail sector is largely controlled by institutional players like Charter Hall, Dexus, and Viva Energy – the latter of which recently announced a $1.15 billion acquisition of the 205-site OTR Group – the allure of tax benefits and secured returns from long-term tenants has made these assets appealing to small-scale investors, according to the commercial agency.
Burgess Rawson Partner Jamie Perlinger said they have 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,” he said.
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.
The report found an average 90 basis point premium for assets located in metro locations as opposed to regional.
Geographic location played a significant role in determining convenience retail sales, as evidenced by the substantial variation observed in cap rates. In Victoria, a particular site had the sharpest cap rate, while the highest cap rate was recorded for a property sold in regional WA. The discrepancy between these two cap rates was substantial, with a difference of 2.98 per cent and 10.44 per cent, respectively.
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 per cent, a contraction from its peak of 6.35 per cent 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.
Mr Perlinger said 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.
“In 2022, EVs made up only 3.7 per cent of all vehicle sales in this country. Not only is that an incredibly low number, you also can’t forget about the 912,922 petrol-based vehicles that still need fuel every day.
“Even for high adopters like Norway, where EVs make up 80 per cent of all new vehicle sales, they still consumed 31.8 million litres of oil per day in 2021.”