A look at Government: Where should I put my cash for good returns, low volatility and long-term stability?
Industry and retail super funds are reporting widespread losses this financial year, the banks will give you 1.25% for 12 months, or you could invest directly in the share market, but who knows if you will back a winner? The share market is still 17% down from its peak in February 2020.
With constant negative media around recessions, COVID-19, unemployment and general impending doom, it would be easy to believe that everything has dropped, and that losses are everywhere.
However, that is not the case; many parts of the commercial property industry are as strong now as they were pre-COVID-19. The Burgess Rawson Portfolio auction on 24 June proved that in spades.
So, let’s compare the pair.
In February this year, when COVID-19 was just on the radar for Australians, we transacted a property in Bairnsdale in regional Victoria which was leased to Centrelink. The property had three years remaining on the lease and sold for $2,600,000 with a 7.10% yield.
Now move forward several months and Kieran Bourke from our Sydney office sold a Centrelink at Nelson Bay in regional NSW. With less than two years remaining on the lease, the property sold for $2,015,000 with a 5.87% yield.
A great return, especially keeping in mind that the Nelson Bay property was almost half the size of the Bairnsdale Centrelink.
What does this show for commercial property? It reiterates that the fundamentals of commercial property are stable and have held up during COVID-19 and that long-term stability is critical in these uncertain times.
Compare returns such as these to the performance of the share market, or maybe your industry super fund in the past six months, and the results speak for themselves.
So why has the Government sector held up, or even increased? It comes down to the fundamentals of Government as an investment class;
- Location – often, Government services are located in prime CBD locations and in high quality properties.
- Reliability – Government services are reliable tenants, maintaining the building to the highest standard and paying rent on time, every time.
- High quality properties – Government services are required to meet extensive fit out requirements, including meeting 6-star energy ratings.
- Security – due to the high and ongoing demand for non-discretionary tenants, such as Government services, they tend to occupy each site for long periods of time.
The Government sector remains a key asset class, showing strong and consistent performance. To discuss our upcoming opportunities, do not hesitate to reach out to me.