Fair comments in some places. However ….
Usually ,commercial returns with very secure tenants and zip vacancy are selling between 6 1/2 – 8% max.
As you know, commercial returns are nett, tenant pays all outgoings, CG is low, vacancy is a worry and when it hits it lasts longer than res. However, tenant turnover is much less, hence occupancy lasts longer. It's a trade off.
Plus commercial leases have teeth (lockout options) unlike res leases. (don't you wish).

Passive motel investment with rent returns are seriously overlooked , usually returning 8-9% with zip vacancy but also, they enjoy an extra factor which other commefcial investments don't have – the bonus is – if the tenant defaults and walks, the lease can be sold again. Tenants pay hundreds of $Ks to buy a motel lease, they move in and live there and operate it, and defaulting means moving home and losing big money. Big incentive to pay the rent and not breach the lease.

CG for a freehold motel is dependant on increasing the nett profit,
unless the land becomes more valuable than the business.
 
Last 12 months, sales of motels has been so quiet that some brokers have stopped trying and bought motels themselves and started operating them because "strangely enough" for those who don't know,  many of us motel operators are saying "what GFC are you talking about ?"
This has been a record year for us, no crisis here. None know the market better than the brokers and for them to buy the product they are selling is a full endorsement.
We are now selling our freehold in 2 parts which might make it easier –  the leasehold for $365K which returns 30% owner operated, and the freehold passive rent collecting investment at $850K which returns 10%.
Any genuine interested parties are welcome to PM me.

You asked – " Do I want an investment for 25 years that brings in 9% rent pa but does not grow in terms of capital gains as say a good residential in a prime location?" 

Personal choice according to your strategy. First, you can sell it, you don't have to keep it for 25 years. Remember it is nett.  Well many investors are looking for exactly that when they retire and don't want the hassle of residential leases, and anything sitting on land has some CG, but less hassle and immediate return in retirement is often more highly regarded than CG. Commercial nett return is now, nett cash flow now, in full, use it as you will. You speak of 5% now, ok, and CG comes eventually, usually, except for the last 2 years.  It's a different strategy I suppose. It suggests a balanced portfolio might do well and be complementary.

I like motel investment, I understand it, it's a real estate based business with a free home thrown in, reliable tenants who can afford the rent, and it has flexibility. I'm expanding further into it.  Some residential property is also on the list for our portfolio but the motel income pays for it.

Apologies for long post, but trying to be informative.

Cheers
thecrest 

If anyone is genuinely and seriously looking to buy a motel in NSW contact me now as I have an excellent one for sale with genuine reasons for selling.
cheers
thecrest

Hi Carpe
Motel leases are usually owner operated and bought and sold through Brokers, and are usually priced according to the current market conditions and nett profit after rent is paid.
At the moment, a motel leasehold in good condition trading well in a good NSW country  town should sell at around 30% nett meaning a leasehold which netts $120K after rent should sell for around $400K.
Landlords are buying freeholds which are leased out already with a tenant / lessee / operator in place paying rent at a level which shows an  8.5% – 9% ROI.
Why do I think these are a good investment ?
Vacancy rate is nigh on nil, because the tenant has paid $400K to buy in, is liable for the monthly rent or in default, walks out and leaves the motel in operating condition and does his dough. Landlord re-sells for another $400K.
Business & leasehold when bought cannot be moved elsewhere (unlike a shop, office or factory).
It's the lessee's home as well.
Motels make money and can afford the rent.
Leases typically are 25 – 30 years.
Rent is CPI adjusted.
Tenant pays all outgoings.

Example.
Freehold value of motel $1.4m
Netts 15% if freehold owner operated =  $210K.
F/H owner sells a lease for $400K, F/H equity remaining $1m x 9% rent = $90K rent.
L/H buyer buys lease for $400K, gets $210K nett, pays $90K rent = $120K nett after rent paid.
So,
Passive Investment Freehold / Lessor /  Landlord  – gets 9% return on $1m.
Lessee motel operator gets 30% return on $400K (plus a free home).

If the leaseholder operator  increases the nett return of the business in a sustainable way, the value of the leasehold  increases and can be on-sold at a higher price. It does not alter the rent. 

Real Example. Initially we purchased a leasehold ourselves with an option to buy the freehold for a pre-set amount within 3 years. So it was like the above example with us having the option to buy the remaining freehold part of the motel for $1m because we had already paid $400K for the leasehold. We operated the leasehold for nearly 3 years and during that time we increased the nett profit hence the value of our leasehold, which provided enough equity for the Bank to approve finance for us to buy the freehold.  The cap gain belongs to us.
  
It's a flexible investment area. Hope this post is not too long.

Cheers
thecrest