During the prolonged uncertainty of 2020 and early 2021, real estate investors kept a tight hold on the purse strings. Since then, it has become clear that certain longstanding peripheral themes – namely medical research, digital connectivity, senior care and education – have jumped into the spotlight. As the picture of our new reality becomes clearer, investors are clamoring to help build the real estate of the future.
Interest in alternative real estate exposure has therefore skyrocketed. These so-called ‘alternative’ property types include student housing, senior living, life sciences, medical office, self-storage and data centers.
Labs, data and dorms
Unsurprisingly, appetite for investment in healthcare facilities recorded the biggest uptick of these sectors in CBRE’s 2021 Global Investor Intentions Survey. Among respondents, 32 percent listed healthcare as a preference in 2020, up from just 12 percent in 2019.
“Life science parks that attract government subsidies in the form of tax breaks, and are in the right location to attract talent, are a key thematic focus for us,” says Rahul Ghai, co-head of private real estate in Europe at Partners Group. This will sometimes involve retrofitting existing office buildings that are close to university campuses.
“Life sciences is a massive area, exhibiting strong rental growth, and we have a big build-to-hold program around the prominent US universities and tech centers,” adds Michael Ness, head of direct real estate separate accounts for CBRE Investment Management. “We are looking to replicate that in EMEA. There are incredibly strong structural drivers of demand.”
Brad Hyler, head of European real estate at Brookfield, agrees that the amount of investment being poured into the sector, by both venture capital and via public funding, is driving the need for more lab space. “Investors see the potential for rental growth and improved capital values,” he says.
Data centers have also become a top-tier property for many LPs. Digital assets were the most favored of alternative real estate sectors in PERE’s Investor Perspectives 2022 Study, with more than 60 percent of respondents targeting the property type. This reflects the M&A buzz around the sector, sparked by heavyweights including Blackstone, KKR and Global Infrastructure Partners moving to create scalable, institutional-grade data center offerings.
To satisfy the growing speed and quantity of information that is shuttling around the globe, both the size and number of data centers will have to grow. According to CBRE Research, more than 527.6 MW of capacity was under construction in North America in mid-2021, up 42 percent year-on-year. The rapid and global expansion of the sector should keep the capital flowing.
Student housing investment, meanwhile, is being driven by an increase in students traveling abroad in search of higher education, particularly among the growing middle class in the Far East. “That is creating tremendous demand for quality purpose-built student housing,” Hyler adds. “Similarly, as Western populations continue to age, demand for senior housing will increase significantly.”