Set and forget commercial assets in high demand

New commercial investors have turned to “set and forget” assets such as data centres, fast food retailers and childcare centres at increasing rates for their long-term income potential and mitigated risk profile, according to an industry expert.

Ray White Head of Research, Vanessa Rader said strong demand for commercial assets with larger multinational tenants during Covid has forced investors to look further afield to find assets with secure leases and high yields.

“Many new owners are attracted to the thought that they can sit back and watch the regular income stream come over the next five, 10, 15 or 20-plus years all with fixed increases,” Ms Rader said.

“Naturally this attractive proposition has not gone unnoticed with private investors scrambling to get into the market causing investment yields to plummet.”

Ms Rader said data centres were an excellent investment option in the industrial sector and their relevance continued to grow.

“While the price points are very high given their high tech nature and large footprint this is a growing asset class with institutional investors highly attracted to them with many new properties being constructed each year,” she said.

“This asset class is strongly aligned with industrial and given the strength of this asset class recently, yields for data centres also fell to average sub 4.50 per cent.”

The large government subsidies on offer for childcare centres helped keep occupancy levels elevated and made for an excellent investment opportunity according to Ms Rader.

“Childcare assets have been a big winner over the past five years, lending has been favourable for this asset type and we saw a big shift of buyers who were investing in service stations switch to childcare as loan-to-value ratio requirements changed,” she said.

“The affordable price point of these assets resulted in a rapid reduction of investment yields both in regional and metropolitan areas, they currently remain low ranging anywhere between 3.5 per cent and 6 per cent depending on quality, operator, lease term and location.” 

Ms Rader said fast food premises performed incredibly well throughout the pandemic and these types of businesses were here to stay long-term.

“Often with big brand names attached, fast food operations are highly sought after by investors,” she said.

“These assets are often located on main roads and on large land parcels allowing for possible redevelopment after their fast food life is over.

“Yields remain low and with few assets changing hands, competition has ensured they remain tight in the 3 per cent to 5 per cent range.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.