In recent years, the commercial real estate landscape has witnessed a remarkable shift as investors increasingly explore unconventional avenues in pursuit of lucrative returns. This trend, which has gained significant momentum over the past decade, sees buyers willingly embracing higher levels of risk to secure unique property assets. These bold investors are not merely chasing immediate gains; many are strategically positioning themselves for future opportunities, eyeing the potential or location of any asset that could unlock substantial value in years to come.
The surge in interest for alternative assets is far from a short lived fad. Private investors have shown particular enthusiasm for a range of commercial properties that were once considered niche. While, institutional players have set their sights on broader horizons, recognizing the growth potential and attractive yields offered by some sectors.
As the market for the now-familiar alternative assets matures, forward-thinking investors are pushing the boundaries even further. The quest for truly distinctive and intriguing property types is now capturing attention, while perhaps unconventional or even peculiar at first glance, may represent the next frontier in commercial real estate investment:
1. Retirement living and aged care
Australia's ageing population is driving increased demand for senior housing, spanning from over-55s retirement communities to high-care aged facilities. This sector presents unique investment opportunities, albeit with challenges. Developers face a dilemma: broad-market residential often yields higher returns than purpose-built senior facilities. However, site-specific factors like lower parking requirements and smaller unit sizes can sometimes tilt the balance in favour of senior housing projects.
Recent years have seen constrained development due to these conflicting fundamentals and labour shortages in care workers. Nevertheless, the undeniable and growing need for senior housing persists across Australia. Downsizing seniors are opening up established housing stock, but there's a clear demand for quality, attractive, and affordable options. Manufactured home communities have emerged as a timely, cost-effective solution in the retirement sector. While the industry faces regulatory scrutiny and occasional negative press, the increasing demand is expected to drive returns and compress yields in this high-risk asset class.
For investors, senior housing represents a complex but potentially rewarding sector. As demand continues to rise, we anticipate growing interest in these facilities, potentially leading to more competitive yields despite the associated risks.
2. Boarding houses
Boarding houses have emerged as an increasingly attractive investment option in today's tight residential market. Once associated with short-term, transient accommodation, these properties now offer investors high returns, low vacancy rates, and steady income streams. The ongoing housing crisis has transformed boarding houses into long-term living solutions, appealing to a diverse tenant base seeking affordable housing.
Private buyers and housing providers are particularly drawn to this sector. Modern facilities have helped shed old stigmas, positioning boarding houses as viable alternatives to traditional residential investments. Their ability to generate multiple rental incomes from a single property, combined with operational efficiencies and strong demand, makes them a lucrative choice for investors willing to explore unconventional opportunities. Yields for these assets range substantially based on size, location and return potential, currently ranging from 5 to 7 per cent.
3. Churches
Churches represent an intriguing investment opportunity in the commercial real estate landscape, particularly given the current strong residential market. These properties often boast attractive architecture and prime locations within established communities, making them well-positioned for creative reuse, subdivision, or redevelopment projects.
Many private investors and developers are drawn to the unique character and potential of church properties for residential conversions, office uses or mixed-use developments. The distinctive architectural features of churches can add significant value and appeal to redevelopment projects, creating one-of-a-kind spaces that command premium prices in the market. While zoning restrictions and potential heritage considerations may present challenges, successful church conversions with their compelling stories and historical significance often serve as additional selling points, attracting buyers and tenants seeking distinctive spaces with character and history.
4. Quarries
Quarries represent a unique and often overlooked opportunity in the commercial property investment landscape. While not a traditional real estate asset, these natural resource extraction sites can offer substantial returns for savvy investors willing to navigate their complexities.
The viability of a quarry investment hinges on several key factors. Foremost are the regulatory approvals, including development and environmental approvals from local authorities, as well as state government permissions, as resources typically fall under Crown jurisdiction. The expiry dates of these approvals are crucial considerations for long-term investment planning.
Market demand for the specific resource - be it hard rock, sand, or sandstone - plays a pivotal role in a quarry's profitability. Investors must assess local competition and proximity to key markets, as transportation costs significantly impact overall viability.
Determining the value of quarries can be challenging. Accurate resource quantification and quality assessment, typically conducted by mining engineers or geologists, are essential for understanding the asset's long-term potential. Valuations usually consider a 20-year horizon and include specialised plant and equipment, often requiring expertise advice. These factors add to the complexities of this asset type, but also to its potential for significant returns.
