Gas stations and childcare centres good performers

8:02 PM Friday October 5, 2018 True Commercial

This Gull service station and associated Night ‘n Day convenience store at 263 East Tamaki Rd, Otara, sold for $4.3m. Photo / Supplied

A continuing strong demand for well-located commercial properties with long leases in place has brought in a flurry of petrol station and childcare centre sales this year.

Bayleys has recently sold five fuel stations and the same number of childcare centre properties for in excess of $28 million.

Senior broker Tony Chaudhary, who was involved in nine of the transactions, says investors are being attracted to these two sectors by their typically lengthy tenancy tenures.

Four of the child care centres that he sold had new 15-year leases and four of the fuel stations had 10 to 21-year leases.

“These are much longer lease terms than is the norm for the commercial property market,” says Chaudhary.

“Many of these leases also have fixed annual rent increases, in addition to rent reviews to market, which means they provide assured, steady rental growth. This, combined with the length of their lease terms, means they offer the prospect of significant capital growth.

“With the commercial property sector widely recognised as being close to the top of its current upward cycle, properties with leases that stretch for the next decade and beyond are also less likely to be exposed to any downturn in the market over the next few years.”

Chaudhary says petrol stations in particular are generally very strongly located, they are in highly visible positions often on main arterial roads with a high profile; and on easily accessible corner sites which increases their appeal to investors.

Recent service station sales include:

• A Gull service station and associated Night ‘n Day convenience store on a 3075sq m site with over 50m of road frontage at 263 East Tamaki Rd, Otara, was sold for $4.3m at a 5.74 per cent yield by Chaudhary in conjunction with Bayleys’ Terry Kim and Eddie Zhong. A 10-year lease to Gull NZ runs until February 2026, with rights of renewal to 2046 and annual Consumer Price Index rent increases.

• A new 228sq m service station on a 2028sq m corner site at 1 Corban Ave, Henderson sold for $6m at a 5.46 per cent yield through Tony Chaudhary, Amy Weng and Janak Darji, who are based in Bayleys’ Manukau office. It is leased to Z Energy for 21 years from June 2016 with annual Consumer Price Index rent increases and 10-yearly market reviews.

• A recently opened 228 sq m 24-hour fuel station with four pump islands and a retail outlet on a 2466sq m site on Hibiscus Coast Highway, Auckland sold for $6,281,067 at a 5 per cent yield through Chaudhary and Bill Lissington, Bayleys Auckland. It has an initial 18-year lease to Z Energy.

• A Caltex service station on a 1200 sq m site on a main arterial road at 248 Welcome Bay Rd, Tauranga sold for $1,350,000 at a 6.21 per cent yield through Chaudhary, Darji and Weng. The tenant has been in occupation since 1995 with a five-year lease from October 2017, plus one five-year right of renewal.

• A 1624sq m site on SH2 at 44 Orchard Road West, Ngatea, with a 96sq m canopy for a fully automated, self-service Gull fuel station was sold for $1,020,000 by Josh Smith, Bayleys Waikato at a 5.66 yield yield. Gull NZ has a 10-year lease plus four five-year rights of renewal.

Chaudhary says the childcare sector in Auckland is also popular with investors because it is experiencing record growth, with a surge in demand for places at the centres.

“The sector is viewed as an attractive asset class, because of New Zealand's high childcare participation rate, with the proportion of children enrolled in early childhood education continuing to rise along with the number of hours a week they are spending at these centres thanks to increased government funding .”

The Government fully funds 20 hours of care a week for all children aged three-to-five. Its stated goal is to have 98 per cent of children attending an early childhood service before starting school.

Population growth, particularly in Auckland, will also continue to be a key driver of demand for childcare places, Chaudhary says, although as with all commercial property sectors the balance between supply and demand can get out of kilter at times.

“It has been noticeable this year that investors have become more cautious and are looking at the quality of the tenancy and the location of the centre. Buyers have also become more conservative in terms of what they are willing to pay so yields have crept up a bit, with most recent sales being around the six per cent mark.”

The largest child care transaction recently concluded by Chaudary and his team of Janak Darji and Amy Weng has been a new purpose-built 511sq m childcare centre on a 1419 sq m corner site at 336 Great South Rd, Papakura, which sold for $4,057,860 at a 5.99 per cent yield. Consented for 85 children it is occupied by All About Children, a North Island-wide early education provider, with a 15-year lease.

In another transaction a 221sq m centre, originally a 1960s house extended in the 1990s, on a 1012 sq m site at 73 Aranui Rd, Mt Wellington, sold for $1,805,000 at a 5.18 per cent yield. Licensed for 40 children, it has the potential to increase this number. It has an eight-year lease from December 2017, with fixed annual rent increases of 2 per cent.

Also, three South Auckland childcare centres with new 15-year leases were sold for the same vendor by Chaudhary, Darji and Weng at prices ranging from $1.56m to $1.95m all at 6 per cent yields