Growing appetite for fast-food property assets

By

30/07/2018

Fast-food assets are highly sought after properties in the current market. With a low risk profile, they attract particular demand from investors who own SMSFs, as they offer long-term indexed income streams underpinned by strong land values. 

The latest trends show that investors are also prepared to pay a premium to de-risk their property portfolios. Yields have compressed from a median of 6.95% in 2012 to 4.92% in 2017/18 across metropolitan and regional locations. 

Still, investor interest in the fast-food sector remains high, driven by its ability to embrace digital technology, and its relative affordability, identifiable global brands and prominent locations with secure, long-term tenants. Early adopters who harnessed the potential of Uber Eats have witnessed a significant increase in sales and customer reach. 

As the commercial investment market continues to grow and mature, investors are often placing more importance on the asset class than geographical location. The yield differential for fast-food assets in metropolitan and regional areas has narrowed, and there is now a minimal yield difference between the two. 

Fast-food assets generally range in price from under $1m to $6m, and incomes start at about $35,000 per year for a small shopfront in a regional town. 

Emerging players to watch in the fast-food space include Oliver’s, Zambrero, Guzman y Gomez and Taco Bell. Core global players, including Hungry Jacks, KFC and McDonald’s, continue to invest heavily and have robust expansion plans. Food is a defensive asset class that is recession-proof – people always need to buy food. 

The expanding list of fastfood choices, including healthy options, will grow to cater for the masses. There is also a move towards ‘going green’. Millennials in particular are driving an interest in giving back to local communities and environmental initiatives. Sustainability programs by franchisees and vendors in the areas where they operate are helping engender community spirit and expand customer bases. 

A number of key asset class fundamentals have been identified in Burgess Rawson’s recent Fast Food Property Investment Report, including:

1. Identifiable global brands as tenants: 
They embrace digital technology to drive consumer demand and sales growth, and have proven track records during economic downturns. 

2. Strong underlying land values: 
These are underpinned by basic tenant requirements, including main-road locations and high-profile sites with multiple access areas and egress points.
3. Government planning controls: 
These restrict tenants’ ability to find new suitable sites in established areas. Limits on crossovers, access, building envelope, activated frontages and queuing opportunities make new sites in established areas very difficult to find or replace. 

4. Relative affordability: 
This sector is affordable compared to other commercial property asset classes.

Recent stock market volatility, constant changes to superannuation rules, and instability within the political environment have driven investors to seek property assets with a low risk profile. Australia’s love affair with bricks and mortar has also increased demand for fast-food assets.
 

Simon Staddon
is director, Burgess Rawson,
and has over 35 years’commercial property
experience in the UK and Australia

 

 

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