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Commercial investors looking at alternative assets

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Commercial investors looking at alternative assets. 

Commercial investors continue to seek out alternative assets even as higher interest rates see demand for the sector slow down. Ray White Commercial Head of Research, Vanessa Rader, said assets such as childcare, medical, and service stations in the sub-$50 million range are more popular than ever with investors.  

“These assets have been growing in popularity over the past ten years, and their attractiveness has not wavered during this time of elevated finance cost,” Ms Rader said. “This year, these assets represented 10.3 per cent of all of the sub-$50 million commercial investment, compared to 3.5 per cent in 2020.

“Investment yields for these assets continue to trade at competitive rates given their expected growing income stream during a time where the built form is king given replacement costs.”

Ms Rader said investors continue to focus on medical assets. “Our increased needs across all age groups, coupled with robust population improvements, is growing requirements for these assets,” she said. “Similarly, childcare continues to increase, buoyed by government subsidies, notably in key growth nodes across the country.”

Ms Rader said service stations remain in demand, particularly those with future upside potential along with blocks of units. According to Ms Rader, there are a wide range of alternative investments including things like car parking and storage.

“Hotel and leisure assets have also grown their share of volume, with caravan parks a land banking opportunity by opportunistic investors,” she said. “The chase to secure these assets has been faster and more active than traditional commercial investment options, which raises the question of: What’s next?

“Perhaps the humble car wash might be the next one, with limited investment needed into the built form, and as vehicle sales continue to grow in line with our population gains, these could offer both a stable income with strong future development upside.”

Ms Rader said industrial property attracted the most attention from the major asset classes, with its share of transactions sitting at 38.2 per cent in 2023.

However, according to Ms Rader, office demand keeps on falling. “During 2020 it accounted for 21.3 per cent of all sales, however, the greatest fall has been felt in the last year to 17.8 per cent in 2023,” she said. “Sentiment shift across the office asset class has been strong given the rapid rise in vacancies due to the changing nature of workplaces in a post-COVID environment.”

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