In the continued search for high-yielding investments, many buyers have ventured up the risk curve, seeking out slightly unorthodox properties. For many, these opportunities may provide short-term returns or offer longer-term potential, with buyers looking towards rezoning, redevelopment, or repositioning in the years ahead. The concept of alternative assets is not new, with growing interest particularly over the last 10 years. Private buyers have shown increased appetite for fast food outlets, service stations, and childcare assets, while at the institutional level, infrastructure, data centres, and cold storage have garnered interest for their growth potential and favourable returns.
While limited opportunities exist in new and emerging asset types, we have identified a few strange but interesting asset types in the marketplace:
1. Car wash
Car wash facilities have emerged as an intriguing investment opportunity over the past five years, driven by demographic shifts and changing urban landscapes. As inner-city areas become more densely populated, the demand for convenient car washing locations has increased, particularly where high-density living limits access to private driveways or yards. This trend is bolstered by Australia's robust automotive market, with over 1.2 million cars sold last year, ensuring a sustained need for vehicle maintenance services. Innovative operators have expanded their appeal by incorporating pet-washing services, tapping into the growing pet ownership trend and potentially increasing their income streams. These factors make car wash businesses attractive tenants, willing to pay premium rents for strategically located sites, essentially hard stand, industrial-zoned land.
Prime locations for car wash facilities include corner plots and those along major road networks, though smaller inner-city sites are also gaining traction. From an investment perspective, car wash properties offer sound exit strategies, with potential for redevelopment or rezoning contributing to tight yields in recent years. Current yields range from 6 to 8 per cent, a notable shift from the sub-4 per cent yields seen during the pandemic period, indicating a normalisation of the market while still offering attractive returns for this niche property type. The accessibility and location of these facilities are paramount, with their potential for future redevelopment making them an increasingly appealing option in the commercial real estate market.
2. Drive-in theatres
Drive-in theatres, once a cultural icon, have become a rare sight across Australia, with only an estimated 15 remaining in various stages of operation. This decline mirrors a global trend, with the United States seeing its numbers plummet from over 4,000 to just a few hundred. Despite their scarcity, these properties hold significant appeal for investors and developers alike, primarily due to their expansive footprint typically spanning 5 to 10 hectares, and offering huge potential for rezoning.
The allure of these sites has not gone unnoticed. Developers across the country have been quick to acquire these properties, dismantling screens and popcorn stands to pave the way for residential subdivisions and new communities. However, potential buyers should be wary of challenges such as flooding risks and environmental concerns that may affect some locations, with alternative development options such as hotels or tourism-focused projects might prove more viable, especially considering the often commercial zoning of these sites. This shift in entertainment preferences away from cinema to Netflix, coupled with the scarcity of drive-in theatres, makes these properties a unique, albeit limited, investment opportunity in the evolving landscape of commercial real estate.
3. Abattoir & food processing facilities
Abattoirs and food processing facilities, while not the most glamorous of investments, have carved out a significant niche in the industrial real estate sector, particularly among private investors. Abattoirs, predominantly found in regional areas, occupy expansive land parcels to accommodate the logistical demands of livestock management. Despite the potentially off-putting nature of the industry, these assets continue to attract investors, driven by Australia's growing population and robust export market. The ongoing demand has resulted in competitive yields for these properties. In parallel, food processing facilities, more widely distributed across both metropolitan and regional areas, cater to local packing and distribution needs. These refrigerated facilities, offer accessibility and are typically larger footprints, exhibit a wide spectrum in terms of quality and technological advancement. This variability is reflected in their yields, which in the current market can range from 5.5 per cent for state-of-the-art facilities to as much as 9 per cent for more antiquated operations. The essential nature of food production and processing lends these industrial assets a degree of stability, making them an intriguing, if unconventional, addition to a diversified real estate portfolio.
4. Brothels
In the realm of unorthodox property investments, adult entertainment venues (brothels) occupy a unique and often contentious position. These establishments, while legally permissible within specific zoning regulations, are not considered a distinct asset class but rather a particular use of commercial property. Transactions involving such properties occur with some regularity across the country, with investors typically viewing them as income-generating assets, similar to other commercial ventures.
However, the sensitive nature of this industry presents distinct challenges for potential investors. Concerns surrounding insurance, security, and safety can be significant deterrents, potentially impacting property values and borrowing capabilities. As a result, investment in these properties is predominantly limited to the private sector. It's worth noting that many such properties have been successfully redeveloped or repurposed for alternative commercial uses over time, broadening their appeal to a wider range of investors. This adaptability can be a key consideration for those contemplating involvement in this controversial sector, as it offers potential exit strategies and future value creation opportunities beyond the property's current use.
These unconventional investments present unique opportunities in the commercial real estate market. However, they also come with their own set of challenges and considerations. Investors venturing into these niche markets should carefully assess factors such as regulatory environments, community perceptions, scalability potential, and long-term market trends. By thoroughly evaluating these aspects, investors may uncover hidden value in these unorthodox property investments while navigating the associated risks.
