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Alternatives sector

We believe that alternative real estate, in particular some housing, healthcare and technology sub-sectors, are poised to play a larger role in institutional investor portfolios. They have the potential to increase portfolio diversification given diverse demand drivers and could generate outperformance relative to traditional real estate property types.

Key facts

assets under management
years of investing
assets worldwide

Housing sector demand drivers

Manufactured housing
  • Manufactured housing has the lowest historical and projected supply growth due to high barriers to entry resulting from prohibitive zoning restrictions
  • Limited capital expenditure burden as the majority of residents own their homes, whereas the landlord owns the underlying land which limits its shared capital exposure
  • Resident homeownership leads to low tenant turnover and consistent NOI growth
Student housing
  • Students prefer housing that combines the modern amenities of traditional apartments with the collegial atmosphere of dorms without the drawbacks of older obsolete buildings or isolating distance of a non-purpose built off-campus apartment.
  • Higher learning demand has historically offered a counter-cyclical element since a weaker labor market encourages people to pursue education. Consequently, student housing exhibited greater resilience than traditional apartments in the global financial crisis.
Single-family housing
  • The single family renter demographic (ages 35-44) is projected to grow at more than twice the rate of the general U.S. population over the next decade
  • 88% of U.S. apartment inventory has two bedrooms or less, which is not large enough to house growing families
  • A highly liquid asset class with ‘sticky’ tenancy, a large investment universe, and low institutional ownership at approximately 2%
  • Expedited migration of population given major life changes, desire to change primary living situation
  • Demonstrated low cap-ex burden, low operational intensity and low obsolescence risk throughout multiple real estate cycles
  • Resilient cash flows given storage derives benefits during both periods of growth and during periods of downturn. Sticky tenants, needs-based use, and smaller monthly rent checks help keep consumers in-place

Healthcare demand drivers

Medical office
  • Driven by a continued shift from inpatient hospital care to outpatient visits and surgeries in an effort to reduce healthcare costs
  • High-acuity use spaces require substantial tenant investment on the space and equipment, resulting in high tenant retention rate relative to traditional office
  • CMS proposals to expand outpatient services reimbursements and eliminate services on the inpatient only list
  • Increased telehealth utilization to compliment higher acuity
Senior housing
  • Senior housing has propelled investor interest due to baby boomers entering retirement who will eventually look beyond their traditional housing towards facilities with more medical support
  • The existing stock of senior housing will need to reprice from pre-COVID-19 levels to pay investors for the myriad risks associated with the sector. This demand wave remains 5-7 years away with baby boomers delaying moves into senior homes due to pandemic and their independent mindset
Life science
  • COVID-19 likely to spark additional R&D for drugs, therapies and vaccines for future viruses. Served as nucleus for pharmaceutical and biotechnology tenants to develop therapies and repurpose drugs to treat and cure COVID-19 patients
  • Strong rent collections and returns relative to traditional office
  • Secular demand is also driven by the development of drugs and medical devices. Human genome sequencing (since 2015) continues to drive rapid advancements in drug development, resulting in increased demand for life science space

Video resources

Technology demand drivers

Data center
  • Accelerated migration of IT infrastructures to cloud servers as companies reduce long-term IT costs and enhance their work from home abilities
  • Growth in data is driven by rising consumption of online content, the rise of big data, and companies migrating their data to the public cloud to save on cost
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Contact us
Michael Hunter
Michael Hunter
Global Head of Real Estate Alternatives and Strategic Transactions
Source: 30 September 2021
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