Government-Leased Properties Are Delivering Consistent, High-Yield Returns

Photo (L-R): Darren Connolly, Chief Marketing Officer of InvestmentMarkets and Adam Bronts, Director of Castlerock

Why Castlerock and InvestmentMarkets See Value in Government-Leased Properties for Long-Term Growth

Investing in government-leased properties is a compelling strategy for investors seeking consistent, stable returns. With assets leased to state and federal government agencies across Australia, the Castlerock Government Property Fund has demonstrated resilience and returns over the long term.

During the most recent InvestmentMarkets investor webinar, Adam Bronts, Director of Castlerock, shared insights into the fund’s successful strategy for achieving stable, long-term returns through government-leased properties. According to Bronts, the fund’s performance has been driven largely by its focus on securing long-term government tenants, which provide a reliable, resilient, and consistent income stream for investors.

Government agencies are considered low-risk tenants due to their reliability and ability to honour lease agreements even during economic downturns. Compared to commercial leases with private entities, the probability of default with government tenants is significantly reduced. Many government leases are also structured with longer terms, often ranging from 5 to 15 years, which provides enhanced security and predictability, over a longer timeframe.

Darren Connolly, Chief Marketing Officer at InvestmentMarkets, explains, “Across our platform we have seen an increased risk-off trend in recent months. We’ve noticed strong interest from investors looking to balance higher-growth assets with reliable, income-generating investments.”

The Fund has delivered a 10-year return exceeding 10%. This success can be attributed to the focus on what Bronts refers to as “sticky tenants” – government entities that remain in-situ for extended periods due to the critical nature of their operations and the scarcity of suitable alternatives.

An example of Castlerock’s approach can be seen in Townsville, North Queensland, where an 11,000-square-metre A-grade facility serves as the primary Queensland government headquarters, housing a broad range of departments, including the North Queensland Disaster Recovery Centre. The building’s importance level four rating requires it to be operational immediately after disasters such as earthquakes or cyclones. With no other assets in the region meeting the government’s specific requirements, the likelihood of tenant turnover is significantly reduced.

Similarly, in Frankston, Victoria, a 7,500-square-metre building completed in January 2024 is fully tenanted by the Victorian state government, accommodating the Department of Families, Fairness, and Housing, and the Department of Justice and Community Safety. The building’s design meets exacting specifications for security, end-of-trip facilities, environmental standards, and accessibility, all features essential for the sensitive social services provided within.

The appeal of government-leased properties also lies in their consistent rental income. This reliability is particularly appealing to those looking to diversify their portfolios with low-volatility assets that generate steady cash flow. Additionally, built-in rent escalation clauses provide investors with the opportunity to benefit from income growth over time. This feature helps to offset inflation and ensures that returns remain competitive.

For Bronts, the key to maintaining long-term tenants is ensuring that the buildings meet the unique requirements of government agencies. From disaster recovery capabilities to tailored facilities for social services, the fund’s properties are built to suit the long-term operational needs of its tenants.

Additionally, the fund prioritises environmental standards, with an average NABERS energy rating of 5.4 stars across its portfolio. Buildings are continually upgraded to meet evolving government standards, including installing EV charging points and increasing energy efficiency.

Despite recent fluctuations in commercial asset valuations, the fund’s income-focused strategy continues to deliver strong returns. Over the past decade, Castlerock has achieved a total return of 10.1%, with forecasted distributions for FY 2025 set at 7.85%, paid quarterly.

With a proven track record of stable returns and a growing portfolio of assets, Castlerock’s approach is attracting attention. “The Castlerock Government Property Fund is one of the top 3 opportunities when it comes to most visited pages on our platform over the last twelve months,” says Connolly.

“We are dedicated to helping self-directed investors stay informed about high-quality opportunities.  One way to stay abreast of the universe of possibilities is to subscribe to our newsletter, education material, and invites to regular events, and hear from great presenters like Adam,” he concluded.

The Castlerock Government Property Fund presentation can be found here.