Top 3 “set and forget” assets to consider

Commercial Property Update

You often hear the term “set and forget” when considering commercial assets but what does that really mean?  These are commercial assets which offer a secure and long term income stream with the tenant taking on all the responsibility of the asset by way of maintenance and upkeep as well as taxes.  Tenants of these properties are often associated with a larger, multinational brand which gives the landlord confidence of business stability, many occupiers like to repurpose the existing structures or build new premises at their own cost to suit their business requirements.

With interest rates so low, the appeal of these assets have been high particularly for new commercial players looking for an easy transition into commercial investment.  Many new owners are attracted to the thought that they can sit back and watch the regular income stream come over the next 5, 10, 15 or 20+ years all with fixed increases. Naturally this attractive proposition has not gone unnoticed with private investors scrambling to get into the market causing investment yields to plummet.  However these assets are not without their risks, for many assets looking ahead is extremely important, understanding your exit strategy as obsolescence could be a concern.

  1. Data Centres

A lot of people don’t think of data centres as an investment category, however their relevance continues 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.  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%.

  1. Childcare

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 LVR requirements changed.  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 3.50% and 6.00% depending on quality, operator, lease term and location.  The large drawcard for this asset has been the high government subsidies which supplement fees, this ensures childcare is affordable to more families and in turn keeps occupancy levels elevated.

  1. Fast Food

Often with big brand names attached, fast food operations are highly sought after by investors. These assets are often located on main roads and on large land parcels allowing for possible redevelopment after their fast food life is over.  During COVID-19 we saw an uptick in trade for these establishments with the affordable food offerings unlikely to move out of favour, these businesses are here to stay and savvy owners have looked to capitalise.  Yields remain low and with few assets changing hands, competition has ensured they remain tight in the 3.00% to 5.00% range.

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