Economic changes in Australia over the past year have significantly changed the investment equation for some compelling ASX shares, with tax changes and higher interest rates.
Changes to negative gearing have made many residential property investments less compelling. Meanwhile, changes to the capital gains discount have made capital gains-focused investments a little less compelling too, when it comes time to sell that asset.
Therefore, commercial property with a focus on income returns could be an excellent buy, particularly following all of the interest rate rises this year, with the valuation discounts that have opened up with some ASX shares.
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Four real estate investment trusts (REITs)
There are four REITs that are particularly attractive to me right now.
Two are focused on industrial properties – Centuria Industrial REIT (ASX: CIP) and Dexus Industria REIT (ASX: DXI). Industrial properties have tailwinds for demand like e-commerce adoption, data centres and onshoring of supply chains.
A third REIT I like is farmland owner Rural Funds Group (ASX: RFF). We all need food and the REIT has rental indexation built into its contracts.
The fourth REIT I really like is Charter Hall Long WALE REIT (ASX: CLW), a very diversified option that's invested in a wide array of properties. It also has contracted rental growth, with fixed increases or rises linked to inflation.
Strong dividend yields
Consider this: many residential properties offer a negative net rental – also called negative gearing, including the likely interest payments. Commercial properties, on the other hand, have a very positive yield. It's a clear win for income investors, in my view.
Each of the REITs has a dividend yield that's competitive with or superior to that of term deposits (despite the higher interest-rate environment).
Based on their FY26 payouts, these are the current distribution yields for the ASX shares:
- Rural Funds has a 5.3% distribution yield
- Centuria Industrial REIT has a 5.6% distribution yield
- Dexus Industria REIT has a 6.6% distribution yield
- Charter Hall Long WALE REIT has a 6.9% distribution yield
Big discounts
One of the best reasons to like these REITs is that they are trading at a significant discount to their underlying value.
These ASX shares report a net asset value (NAV) or net tangible assets (NTA), which tells us what the net figure of the property valuations, the loans, cash and so on are worth.
They look great value compared to their December 2025 figures. Higher interest rates may have hurt investor confidence, but I believe that when interest rate cuts occur – possibly next year – this could push up the share prices again.
At the time of writing, these are the following discounts:
- Rural Funds is trading at a 28% discount
- Centuria Industrial REIT is trading at a 24% discount
- Dexus Industria REIT is trading at a 26% discount
- Charter Hall Long WALE REIT is trading at a 21% discount
At the current levels, I think all four could outperform the S&P/ASX 200 Index (ASX: XJO) over the next two to three years.
