Cafes become flavour of the month for investors

Cafes appear to be flavour of the month with investors - with a number of retail offerings adding plenty of froth to Bayleys’ end-of-year auctions.

More than $40million worth of commercial and industrial property was sold at North Island auctions last week. Two café premises sold at yields of less than six percent. An 83 sq m authentic Asian eatery located at 9 -11 Victoria Street East in Auckland’s CBD sold for $768,000 at a 5.9 percent yield through James Chan and Quinn Ngo of Bayleys Auckland.

Located next to entranceway to the refurbished Lister Building, the property sits between two of Auckland’s most popular retail streets, Queen Street and High Street. It is currently producing net annual rental income of $45,622 on a three-year lease to Victoria Cafe Ltd, with two-yearly rent reviews.

Chan says property at this rental income level doesn’t become available in the CBD very often - which increased its appeal to smaller investors who competed strongly for the offering on the auction floor, with bidding increasing by increments of $500 towards the end.

Chan was also involved in the sale of an even smaller offering on the North Shore, a well established 72sq m cafe in the Sunnynook Shopping Centre producing net annual rental income of $36,000, which sold under the hammer for $610,000, also at a 5.9 percent yield.

Marketed in conjunction with Nicolas Ching of Bayleys Auckland, and Damian Stephen, Bayleys North Shore Commercial, it is occupied by The Great Café, and has a new six year lease with two-yearly rent reviews.

Chan says the property is in a strong corner location in the shopping centre close to a Countdown supermarket. He says these types of smaller cafes are popular with investors - particularly if they are located in areas of high pedestrian traffic - because there are generally plenty of other operators ready to take them over should the existing business decide to move out.

Also selling on Auckland’s North Shore was a 144square metre café at 59 Apollo Drive, Albany which went for $960,000 at a 6.85 percent yield. It has a new 10-year lease to Sticky Fingers Café & Deli, with two-yearly rent reviews.

Caleb Belling of Bayleys North Shore Commercial, who sold the property in conjunction with Richard Moors, says it is attracted strong interest because of its high profile road frontage on busy Apollo Drive in an attractive office precinct which had undergone substantial growth and development in recent times.

Further south a 120square metre café in Puhinui Road, Papatoetoe, sold for $522,000 at an 8.6 percent yield through Geoff Wyatt and Tony Chaudhary of Bayleys Manukau. It is occupied by VnA café on a six year lease from May 2008, with two yearly rent reviews, and is located in a retail convenience centre on a busy arterial road between Manukau City and the airport.

Chris Bayley, Bayleys’ general manager commercial and industrial, says investor demand for well located, good quality retail property, of which cafes and restaurants are a popular segment, has continued unabated in 2009, with big crowds turning up for the auctioning of these types of offerings.

He says yields for top quality retail properties below $5million have moved little, if at all,
with most emphatic evidence of this being the sale of all 22 shops put up for auction in the Lincoln North Shopping Centre in Henderson in July in which 12 of the offerings sold at yields of less than six percent.

Bayley says the retail property sector has its own dynamics which means it generally performs well in all market conditions.

“The old real estate adage of ‘location, location’ has a lot to do with it. Vacancy rates for well located retail outlets are low, even in times of recession, and if a tenant does, leave it is generally easier to find a replacement than with other types of property.”

There is also a strong local Asian component to the market, particularly in Auckland.

"Local Chinese, Korean and Indian investors who have immigrated to New Zealand and set up and run successful retail businesses are now moving up the property chain," says Bayley. "They have extensive networks among their cultural communities so that if a tenant moves, they have a selection of other occupants ready to move in.

"The nature of retail property investment in Auckland now reflects how the city as a whole has become such a vast cultural melting pot – embracing cultures from South-East Asia, the Indian sub continent and the Middle East. We are seeing more and more buyers from these ethnic backgrounds and this year has shown that they are active in all market conditions."