Investors searching for lucrative opportunities in the UK property market could have a lot to gain from looking beyond mainstream segments and focusing on alternative assets, such as student accommodation and hotels.
According to research by Cushman & Wakefield, alternatives now represent the largest sector in the UK real estate investment market.
All other property types – such as offices and retail sites – have seen their share of total investment volumes decrease in 2019.
Alternatives lead the way
Alternative assets accounted for more than a third (37 per cent) of total commercial real estate investment in the UK during the first half of 2019. The office market, by comparison, saw its share of investment fall to 33 per cent.
The Cushman & Wakefield study noted that the collection of “specialist real estate, infrastructure and long-income deals” making up the alternative property space has been steadily expanding its share of investment volumes since the global financial crisis.
“In the last few years, we have seen this trend accelerate as retail and office performance has weakened,” the report authors write.
Various factors have contributed to the growing popularity of alternative investments, with some buyers drawn to the long leases typically available in the sector, and others appreciating the high returns associated with operational responsibility.
When they find the right opportunity, regardless of the specific property type, investors in alternative real estate have shown a willingness to invest at scale.
Looking at particular trends in alternative property investment this year, the research revealed £12 billion was invested in the second quarter, taking the rolling annual total to £58 billion. Institutions have decreased their investment activity, but private equity investors have been increasingly active in both buying and selling.
There have also been some telling developments in the global picture, with significant changes in the sources of foreign capital.
Top investors from the US, China and Hong Kong have been net sellers or absent from the market, but other countries have stepped up their activity. France, Israel and South Korea have been among the fastest-growing sources of international investment in UK alternative property in the past year.
A decade of growth
Earlier research from Cushman & Wakefield provided an insight into the long-term growth taking place in the alternative property market. A decade of expansion has seen alternatives increase their share of total commercial real estate investment volumes from five per cent in 2009 to 28 per cent in 2018, which was a record high at the time.
The commercial property consultancy highlighted two key factors that have fuelled this trend, the first of which is decreasing lease lengths in mainstream sectors, which has driven investors to look for alternative, sustained income streams.
Secondly, competition for prime assets such as offices has been particularly fierce in recent years, meaning alternative assets like hotels and student property have become increasingly attractive, particularly in light of their potential to deliver returns over the long term.
Greg Mansell, head of UK research and insight at Cushman & Wakefield, said: “The investment trends of the last decade have permanently changed the UK real estate investment market. Alternative real estate is increasingly liquid, international and institutional.
“The low-yield environment, short leases in mainstream assets and investors taking direct responsibility for asset management should ensure alternative real estate continues to develop in the same way it has done over the last decade.”
For investors looking for alternative property investments in the UK at the moment, one of the most promising and potentially lucrative segments is purpose-built student accommodation.