Explore the 2023 Commercial Going Concern market with a focus on trends shaping the landscape. From pubs and hotels to tax strategies, self-storage, childcare, caravan parks, and service stations, this wrap-up dissects the nuanced dynamics driving the commercial sector.
Pubs/Hotels: Strong Prices for Gaming Assets
In 2023, pubs and hotels along Australia’s eastern seaboard continued to attract strong prices, although sales volumes were lower than in 2022. Investor interest remains relatively strong for assets underpinned by gaming revenue and entitlements, despite a decline in the value of such entitlements in NSW since late 2022 and early 2023.
Hotels without gaming revenue or entitlements are considered more volatile, given their sensitivity to management. High operational costs, including food, beverage, and accommodation services, and increasing staffing expenses and supply constraints contribute to this volatility. The demand for these hotels, without the gaming and revenue entitlements, appears to be softening, prompting rigorous due diligence focussed on recorded operational revenues and profitability.
Tax Depreciation: Unlocking Business Value
The year 2023 has seen more purchasers leveraging significant tax deprecation entitlements on new or second-hand assets and improvements. As operating costs impact Net Operating Profit, considerations like instant asset write-off changes and temporary full expensing measures can result in significant tax deductions. These deductions, ranging from tens of thousands to hundreds of thousands of dollars, in just the first financial year of ownership, can significantly offset the initial outlay in purchasing the business.
Self Storage: Strong Demand in Regions
Throughout 2023, the self-storage market in regional Queensland and Australia continued to experience growth, leading to firming yields and increased rates per square meter for storage units. A primary driver for high occupancies is the remarkably low rental vacancy rate. Anticipated housing shortages and growth rental market growth in 2024 are expected to heighten demand for secondary storage as people rent smaller dwellings or units.
Childcare: Resilience Amid Challenges
Childcare assets have remained strong and attractive to investors in 2023 due to their reliance on government incentives, rebates, and the increasing trend of female workforce participation. Higher occupancy rates further enhance the asset class’s appeal. However, ongoing labour shortages pose the biggest challenge the industry faces with operators required to pay above-award wages and operate at above-required ratios to provide better working conditions and maintain staff. Despite higher wage costs, leasehold and going concern centres have seen a slight softening in achievable yields.
Caravan Parks: Focus on Cashflow Stability
Buyers in the caravan park sector remained active in 2023, prioritising cash flow stability. Properties with demonstrated stable cashflow histories were in high demand, while those with cashflow volatility faced challenges in the market. Smaller-scale parks, requiring comparatively limited management exertion and offering lifestyle opportunities, were most in demand. Demand for corporate-style parks softened as institutional investors sought greater returns to appease investors in the current rising interest rate/inflation environment.
Service Stations: Market Reset Following Low Yields
The service station market in 2023 continued to follow the broader property market trend, resetting after experiencing record low yields in the historically low-interest rate environment of 2021 and early 2022. The reduction in transaction volumes in 2023 is expected to continue through 2024 due to the divergence between vendors' and purchasers’ expectations.