New JLL research reveals increasing investor demand for alternative asset classes, with respondents to JLL's UK alternative investors survey reporting a 33% rise in alternatives under management year-on-year.
Investors interviewed recorded over £61.5 bn (€70 bn) of alternatives assets under management, compared to £46 bn in last year’s survey. Alternatives transactions also totalled a record £16.3 bn in 2018, up from £15.7 bn the year before.
Student housing remains the most popular choice, with one in five investors looking to invest in this area. This is followed closely by leased hotels and the developing multifamily and retirement living sectors. There are fewer investors targeting assets such as primary healthcare and self storage, but these investors are seeking to increase their exposure to these sectors more aggressively. Most respondents are looking to invest in more than one asset class, especially in those with similar demand profiles and transferable management skills.
'The core fundamentals supporting alternatives are continuing to bolster the sector’s credentials as a strong investment opportunity, especially in the midst of economic uncertainty,' said Ollie Saunders, lead director, alternatives at JLL.
Purpose built
'There is still a strong need for more purpose-built supply across all sectors to meet growing demand, which is increasingly fueled by long-term demographic changes,' Saunders added. 'The constantly changing nature of economic and political events could have varied impact on alternatives and commercial property in general, but, as an established and key feature of the real estate market, the sector is set to outperform traditional asset classes.
'For that reason we can expect continued growth in the year ahead. The flexible and multiple occupier nature of many alternatives sectors is also now driving change in the traditional property markets.'
According to the survey, respondents are planning to invest an additional £14.4 bn into alternatives by 2020. Not only is this a significant proportion of the overall commercial real estate market, it also suggests a continued increase in alternatives market share.
Furthermore, overseas investors have been a key feature of the alternatives market, accounting for 50% of all buyers in recent years.
'A core reason for investors targeting alternatives is the shortfall in institutional quality, modern, purpose-built assets compared to demand,' said James Kingdom, head of JLL alternatives research.
'Structural and demographic changes such as population growth and an ageing population are driving demand and the need for more supply. By 2025, there will be 5.5 million more people living in cities across the UK and this is set to transform how we use real estate,' Kingdom concluded.
