Over the past decade, Australia’s population has grown by 16% (ABS Figures as at Mar-24), driven by overseas migration. This surge has increased demand for essential services, boosting the demand for real estate like childcare centres, fast-food outlets, service stations, and medical centres. Colliers Research have now released The Premium Investments Report, uncovering the link between population growth trends and the increased demand for alternative assets in Australia.
These sectors, classified as premium investments, are crucial for daily life and have seen heightened development and demand due to their scale and geographic spread. Childcare centres, fast-food outlets, service stations, and medical centres are more resilient to economic downturns, making them a more risk adverse investment proposition with a reliable income source and capital growth.
Colliers National Director of Research Australia, Joanne Henderson said “In 2023, we observed subdued activity due to market uncertainty, rising interest rates, and other macro factors. However, as the market stabilises and interest rates and inflation find clearer direction, price adjustments and balanced buyer-vendor pricing are expected to invigorate the market. From a population growth perspective, Australia is forecast to record one of the highest rates of population growth globally over the next decade, supporting economic growth and consumer consumption of goods and services and the demand for essential services real estate provided by premium investments.”
The affordable price points of these investments attract a wide range of investors, especially those preferring long-term leases and fixed income growth. Private investors, self-managed super funds, and interstate buyers seeking secure investments have driven demand in Australia. Metro-located assets are the most desired, often selling at lower yields due to high demand, with yields typically ranging from 4% to 7%.
Colliers National Head of Premium Investments, Jordan McConnell said “In evolving markets, investors focus shift towards more secure defensive assets which provide security of tenure, covenant and projectable long-term returns (often which may be used as a hedge against inflation with CPI rental increase mechanisms). This sees specialised assets such as medical, childcare and other social infrastructure as highly desirable options for private and institutional purchasers.”
Childcare - Childcare assets accounted for 18% of sales activity in the premium investment sector over the last 18 months. Demand for Childcare assets remains robust as strong population growth and high employment drives continued demand and underpin its attraction as a defensive investment proposition.
As of March 2024, Australia had approximately 1,511,200 children under four, making up 5.6% of the nations total population (ABS). Of all the States around the country, Western Australia (5.74%) and NSW (5.65%) had the largest proportion of children under the age of four.
Modern Childcare Centre’s continue to draw interest from a wide pool of investor types, providing an attractive investment option for both Institutional and Private buyers due to key attributes including long WALE, secure leases, annual rental growth, attractive depreciation benefits, Government subsidies provided, industry support as well as properties being strategically placed on well-located sites.
Mr McConnell said “The childcare market has a positive outlook and remains appealing to investors. With strategic direction, childcare assets can yield high returns. Workforce growth is expected due to higher staff-to-child ratio requirements, and is supported by government initiatives. Premium centres offering niche services like medical care, extra-curricilar activites and cooked meals are on the rise, boosting revenue. Investors seek sites in undersupplied regions, especially newer developments with better facilities.”
Investors are shifting focus towards more secure defensive assets which provide security of tenure, covenant and projectable long-term returns. As such, we expect continued heightened demand across these specialised asset classes moving forward with these defensive assets becoming highly desirable options for private and institutional purchasers.
Service Stations - Australia’s service station market, valued at $48.4 billion in 2024, remains crucial for national mobility and economic support. The market has evolved from being dominated by major oil companies like Shell, BP, and Caltex to featuring over 40 brands. Key players, including 7-Eleven, have expanded aggressively through partnerships, rebranding, and diversifying services.
Independent operators hold significant market share, especially in regional areas, offering personalised services and building strong community ties. The sector now includes diverse offerings such as convenience stores with fresh food, car washes, pet grooming stations, and drive-thru coffee shops.
For investors, the service station sector offers stability and attractive returns, with historical yields ranging from 4.5% to 5.0%. Despite recent macroeconomic challenges, the market’s core fundamentals remain strong. High visibility locations and development potential are critical factors, with investors favoring long-term leases (WALE) to maximise returns.
Mr McConnell said “Looking ahead, the service station sector is well positioned for a resurgence once macroeconomic conditions improve. As the market stabilises, investors prioritising long-term value will find stations with strong fuel sales and prime locations particularly attractive. Those seeking predictable income will be drawn to stations with favorable lease terms and equipment ownership. With its essential nature and potential for growth, the service station sector remains a strong investment.”
Retail premium investments - Retail premium investments remain the most liquid asset class, especially in the $1-5m range. Over the past 18 months, these assets have dominated sales, contributing to 37% of activity in 2023 and 34% in 2024. Key transactions in Sydney Metro were acquired by private and high net worth individuals, reflecting sharp yields due to future repositioning or development potential.
Non-discretionary retail, driven by everyday goods, has performed well since 2020. Investors favour sectors like food, retail services, and supermarkets for their income security and favourable lease structures, such as turnover rent and fixed annual reviews, which act as an inflationary hedge.
Australia’s population is projected to grow by up to 14% over the next decade. Combined with new retail supply levels 50-60% lower than pre-pandemic, this growth is expected to enhance the value of existing retail properties. Limited new supply, a growing population, and densification of catchments are likely to drive higher sales density and rental growth in the future.
Colliers Research Director Australia, Nik Potter said, ”The investor base for premium retail investments, like the broader shopping centre market, is largely composed of private and syndicated capital. These investors, often focused on long-term wealth preservation and opportunistic investors, are predominantly cash buyers and thus less affected by high interest rates. Over the past year, institutional investors have taken a cautious approach, creating strategic opportunities for private and syndicated investors who have facedless competition.”
Mrs Henderson said, “As we start to see more stability in debt markets, and increased confidence surrounding rate cuts likely in early 2025, we expect overall transaction markets to start to become more active as buyer and vendors show more alignment on pricing. However, we expect premium investments real estate to continue to remain the most liquid segment of the market over the remainder of 2024 as investors continue to look for more secure, long-term tenant covenants and defensive investment options as part of their investment strategy.”
