Five commercial property investments that can withstand a recession
With the expectation of an imminent recession growing, API Magazine details five commercial property investment opportunities that can withstand a serious economic downturn.
Every recession is different. Where one recession might hit tech stocks, another may hit the banks, and another may affect the mining companies.
The fight against inflation through the implementation of constantly interest rate increases is, if overplayed, a potential catalyst for a recession.
The recession risk could also come from abroad, with the United States and Eurozone also wrestling with high inflation.
This week in the US, The Harvard Gazette reported that the prospects of avoiding a recession are fading. It quoted Kenneth Rogoff, Professor of Economics at Harvard, as saying, “Never say never, but it seems that the chances of a soft landing are getting smaller and smaller.”
And when the US sneezes, the world catches a cold.
But even in recessionary times, there are commercial property investments that can weather the storm and even thrive.
When investing during a recession, it is important to consider opportunities to acquire assets at lower prices, generate steady rental income and position for long-term growth.
It is particularly important to consider investing in commercial properties with a history of stable income. Such investments are less likely to be negatively impacted by economic downturns.
If the Reserve Bank of Australia keeps driving interest rates up, consumer spending will plummet, which will affect non-essential retail and small businesses.
It’s crucial to know which businesses can offer a stable income regardless of economic conditions.
Five recession investment opportunities
1. Medical assets
Healthcare services are always in demand, regardless of economic conditions.
Medical assets often have long-term leases with stable tenants that provide a steady income stream.
As healthcare services are essential, the demand for medical facilities and services tends to remain constant.
People need access to medical care; therefore, many healthcare services are supported by government programs, which again provide a steady stream of income to medical facilities and an additional layer of stability to medical asset investments.
2. Childcare centres
Childcare centres are considered essential services and continue to be in high demand in recessionary times.
Working parents need care for their children, whether they are working from home or on-site. Childcare centres tend to be recession-resistant because they provide a necessary service. As demand for childcare services grows, there may be opportunities for investors to expand their operations or acquire additional centres.
Like medical assets, childcare centres also tend to have long-term leases with stable tenants, which can provide consistent rental income over an extended period.
3. Shopping centres with supermarkets
Supermarkets are also essential businesses and the demand for groceries and other household necessities tends to remain stable even during economic downturns, providing investors with a stable and predictable source of rental income.
Supermarkets often serve as anchor tenants because they provide a steady flow of foot traffic, which can benefit other tenants in the centre and provide a stable source of rental income for the entire shopping centre, even if some tenants are struggling during a recession.
4. Asset classes in growth phases
Asset classes that are in growth phases often have underlying trends that are less impacted by a recession.
They can have strong long-term growth prospects, even if short-term fluctuations occur. Consider technology – innovations that are reshaping many industries; renewable energy – a progressive trend committed to reducing carbon emissions; and e-commerce, which is expected to grow as more customers shift the spending to online shopping.
E-commerce companies require space for their operations, which brings us to industrial property.
5. Industrial and logistics properties
Industrial property is often used for essential services such as manufacturing, storage and distribution, which are less impacted by recession.
The demand for these services may remain constant or even increase, providing investors with a more stable source of rental income from typically long-term leases and low vacancy rates. Additionally, investing in industrial property can provide diversification benefits for investors, as it is a separate asset class from other types of commercial property, such as office or retail properties.
You can never fully generalise what type of investment will be better during a recession, as different economic weakness points will surface in every slump, however, there are opportunities to acquire high-quality assets and secure long-term rental income via commercial property investment.