Car parks, churches, cemeteries and brothels are among the unorthodox assets commercial property investors have turned to in recent years as they search for growth, development potential and long-term capital appreciation.
Ray White Commercial Head of Research Vanessa Rader said boarding houses, cold storage and caravan parks were other alternative assets increasing in popularity.
She said during Covid-19, when interest rates hit rock bottom, commercial investors looked to diversify their portfolios and sought security in assets such as medical centres, service stations, childcare centres and fast food outlets, all of which could largely remain open during a lockdown.
Values for such properties rapidly increased and Ms Rader said investors were now looking for the next up and coming asset class.
“In the current market, these alternatives no longer seem all that alternative as many investors continue to move up the risk curve to secure a piece of commercial property,” she said.
“For some it’s based on affordability, while others may focus on future growth or development potential, earning them quality longer term capital appreciation.”
Ms Rader said car parks were an asset that provided flexibility and offered solid returns, especially in cities.
“This is a use which can be as small and affordable as a single space through to multi-level parking facilities,” she said.
“Many of these assets are privately owned but also have some institutional and offshore activity due to the large land parcels they often occupy.
“The longer term development potential is often a motivator for the parking sector, however, robust returns, particularly in major cities, make parking an attractive investment option, albeit often attracting high levies and taxes imposed by state or local governments recoverable by occupiers.”
Ms Rader said brothels transacted regularly across Australia and were considered an income stream like any other use.
However she said insurance, security and safety issues could deter some buyers and, depending on borrowing levels this could impact values.
“Investment is dominated by the private sector and despite their current use, there have been many examples of the redevelopment or repositioning of brothels to other commercial uses, which may be more attractive to a broader range of investors,” Ms Rader said.
Churches and cemeteries are two other unusual asset classes gaining in popularity, Ms Rader said.
“While some people may be put off by this asset, there are many private buyers happy to jump through the required hoops when purchasing assets with a cemetery,” she said.
“These assets typically are unable to be built upon or disrupted, the cemetery needs to be catalogued for historic record keeping, and the incoming owner may have the responsibility of caretaking and making the property available for those wanting to visit.”
But Ms Rader noted churches don’t have the same requirements, despite having some restrictions on allowable uses according to local zoning.
She said churches were often redeveloped into residential or commercial premises and some older properties could have heritage considerations.
“The architecture and story attached to the property is often a drawcard for those looking to occupy or purchase existing or redeveloped church facilities.”
Boarding houses have also increased in popularity as an investment option, particularly given the rental crisis.
Ms Rader said a boarding house was a build-to-rent option before build-to-rent forged an identity of its own.
“These assets range significantly in size and quality, with a number of more modern facilities being completed in recent years, removing the stigma surrounding some of these assets,” she said.
“These assets provide affordable, short-term stays, however, given the current housing crisis, these properties are becoming more long-term for tenants, with increasing returns.”
Cold storage facilities have also grown in popularity along with their sophistication, over the past 20 years.
Ms Rader said they were popular with institutional and offshore buyers.
“Capitalising on the growing population and the need to store and distribute perishable food items as well as pharmaceuticals across the country has seen investment demand for this asset class grow and dictate new lows in yield,” she said.
“With technology improving and the various types and levels of temperature controlled facilities, these assets can quickly become outdated or be superseded, resulting in the divide between prime and secondary widen rapidly.”
Similarly, storage assets gained popularity as an investment asset during Covid-19 when more units were needed to store toys such as boats, cars and caravans.
Similarly Ms Rader said caravan parks remained a favourite with private investors for numerous reasons.
“Returns for these assets have seen some volatility, however, domestic tourism activity has shown strong results since the pandemic with a strong lift in occupancy rates and daily rates making it attractive for park operators,” she said.
“Many buyers, however, look to landbank these assets for possible future redevelopment opportunities while taking advantage of ongoing returns.
“These assets are often located in high quality, tourism nodes, however, can be affected by flooding, bushfire, etcetera, prohibiting future development.”