Investors migrating into ‘alternative’ real estate sectors
This article appeared in our latest quarterly Indicators report, the real estate edition. To download the full report, click here
Demand in the property market is shifting toward ‘less travelled’ areas of real estate, where there is less competition and better return potential. These include areas like data centres, student housing, senior housing, flexible work spaces, and affordable housing projects.
The potential is drawing interest from investors across the Asia Pacific region. PWC’s Emerging Trends report finds that ‘the shift toward niche investments is more pronounced this year, with investors increasingly willing to take a punt in areas they previously avoided due to the perception of higher risk or the need for specialist operational expertise.’
Alternative sectors proving valuable
Despite the hurdles associated with these unconventional asset classes, investors are looking past their previous misgivings and seeing only the possibilities, which come in the form of high returns and long-term stability.
The operating leases of these property assets generally extend a minimum of 20 years, resulting in a steady stream of income for investors and eliminating much of the risk associated with market volatility. And, they offer comparatively high returns to traditional real estate. Data centres, for example, can offer yields of up to 6-7% in Singapore, and go even higher in other parts of Asia.
Asset diversity a growing advantage
Another motivation for investing in these less-trodden asset classes is diversification. They appeal to portfolio holders looking to round out their offerings to include more diverse and unique options.
With consistent economic growth, world-class infrastructure, and strong links – both geographic and trade – to Asia Pacific, Australia and its stable market are particularly attractive to investors seeking to migrate into these sectors.
Singapore is one country showing a very keen interest, particularly in data centres and student accommodation in Australia, with several multimillion-dollar deals under their belt and more in the pipeline.
To learn more about the trend of investment into alternative property asset classes, download our new Indicators report here.