Pubs, cemeteries, storage – investors target alternative assets

With interest rates low and plenty of capital competing for property, income-chasing investors are getting creative in their search for opportunities.

From pubs to cemeteries, outer metro to regional, demand data captured by realcommercial.com.au is showing increasing interest in less conventional assets.

After enduring almost two years of unprecedented disruption, many commercial property investors are rethinking their strategies. This has driven increased asset diversification and demand for more resilient, ‘pandemic proof’ properties.

Alternative assets in the care sectors, such as medical and childcare, have seen the strongest growth in demand, outpacing more traditional properties such as office and retail.

Those with high quality tenants and long lease terms in place are particularly sought after by investors, and growing competition has driven rapid price appreciation since the pandemic struck.

Care properties aren’t the only alternative assets investors are eyeing up. Pubs, service stations, self-storage, and even cemeteries are among the assets that are seeing increased demand.

Cemeteries, like this one in Smithfield, are popular with investors. Picture: realcommercial.com.au/for-sale

Sales activity reflects this. While overall commercial sales volumes were a whopping 36% lower in 2020 compared to the preceding five-year average, the story was very different in the alternative assets space.

In contrast to the broader trend, 2020 was a record year for alternative sectors. Service stations, medical offices, student accommodation and data centres all saw sales volumes hit new records in 2020, according to data from Real Capital Analytics.

This trend has continued into 2021, with new records already broken for medical offices, pubs, self-storage and childcare.

Investors aren’t just chasing a wider variety of property types, they are increasingly exploring more locations. Demand for regional commercial real estate has surged over the past 18 months, with many investors looking to take advantage of the record levels of migration into these areas.

Population growth is a key driver of the success of commercial real estate, as it benefits the success of businesses already operating in these areas and encourages new entrants.

On realcommercial.com.au, searches to buy commercial property in regional markets were at the highest level on record over the past 12 months.

Predictably, many of the regions recording the largest gains in commercial buyer demand are those which have likewise seen strong population and residential price growth.

Standout regions include Southern Highlands and Shoalhaven in New South Wales where buy searches are up 59% year-to-date compared to the same period last year, Shepparton in Victoria, up 53%, and Cairns in Queensland, up 43%.

Increased regional search activity has already translated into more sales. Over the first three quarters of 2021, commercial sales volumes were 78% higher in regional areas compared to 2020 levels, and 70% higher compared to 2019.

So, is the success of alternative assets likely to continue into 2022?

All signs suggest so. Demand for commercial property has risen strongly across the board, with early indicators such as search and enquiry volumes indicating growing confidence in the sector.

This suggests competition for property will remain strong and prompt investors to continue seeking out less conventional opportunities.