A Growing Appetite for Specialist Real Estate Investment

Published 28 Jun 2018

Earlier this month, JTC’s Head of Real Estate Services Philip Hendy spoke at the 3rd Annual Real Estate and Real Estate Funds Conference, where he discussed the rise of alternative and niche investment assets with a particular focus on real estate and the emergence of alternative real estate investments.

The event was attended by a wide range of fund and real estate experts, the focus was on trends in real estate and real estate funds. Philip highlighted that alternative investments have moved increasingly into the mainstream, giving rise to alternative real estate which has seen significant growth and now becoming a recognised sector.

“Alternatives (i.e. not stocks and bonds), are generally investments aimed at exploiting inefficiencies in markets with a focus on non-conventional assets, have proven increasingly popular in recent years,” said Philip. “They help achieve investment diversification, they dampen volatility and they can offer better returns – so it comes as no surprise that we’ve seen the value of alternatives being managed rise more than six-fold over the past couple of decades, from US$1trn in 1991 to around US$6.5trn today.”

Highlighting the fact that the vast majority of the US$6.5trn is manged in North America (55%) and Europe (33%), Philip explained that investors are increasingly placing value on an active approach to asset management and that real estate showed clear appeal as part of an active strategy.

The top 100 alternative managers, he said, represent around US$4trn, of which just over a third (35%) is real estate. In comparison, private equity represents around 18% of that total.

“What we see, is greater specialisation within real estate. Whilst ”traditional” real estate – offices, industrial, retail – all remain attractive, the driver behind alternatives, to exploit efficiencies in the market and a focus on non-conventional assets and strategies, has been embraced within real estate itself despite real estate being considered an alternative.

“With that in mind, we’re seeing more and more interest in these “alternative” areas of the real estate market – student housing, data centres, logistics, private residential for rental, and healthcare for example.”

That trend, he suggested, looked set to continue, with global transactions in alternative real estate up 16% per annum over the last five years:

“The US has seen a significant rise in alternative real estate investment over the past five years, and the UK has also benefitted from the trend. In 2017, UK alternative real estate transactions totalled almost £16bn”.

Whilst there are potential challenges to disrupt this trend – lack of product, gaps in specific expertise and potential legislative interferences - Philip also emphasised that he believed there would remain good reason for this appetite in alternative real estate to persist.

“At JTC, we’re certainly seeing a good level of demand for alternative real estate assets, and we don’t expect that to change any time soon. It’s an area of real estate that offers an ability for active management to increase returns, can provide stable long-term income and gives exposure to change, and that’s an attractive proposition to investors.”