As global markets move into recovery, fund managers often stick to core commercial property in safe havens. Yet there are signs that some investors see so-called alternative investments as a welcome break from convention.
Figures prepared for MIPIM News by New York-based research firm Real Capital Analytics (RCA) reveal that investment deals involving healthcare assets and student housing rose sharply in both Europe and the US — totalling $1.48bn and $4.52bn respectively.
This may be small beer compared with mainstream assets but hardly insignificant. “In terms of trends, the alternative sectors of student housing and medical offices are clearly attracting more investment interest both in Europe and the US following a lull in 2009,” says Joe Kelly, RCA’s director of market analysis. “Going forward, one would anticipate the growth in the investment market of these sub-types to be attributed to both a continued improvement in overall real estate capital markets and increased transparency and access associated with these specialist sectors.” Retirement housing is another area generating interest, but for demographic reasons rather than institutional returns. Arguably this is the biggest potential alternative investment of them all.
One of the most significant endorsements of student accommodation came last September when the influential Carlyle Group entered the UK market with the purchase of a site in London and the promise of acquiring three more in quick succession. In one fell swoop the self-styled “global alternative asset manager” stood to gain a 1,850-bed portfolio worth £350m. Carlyle said it wanted to work closely with London universities to “fulfil their specific requirements”, in an echo of its activity elsewhere.
The London move followed the launch of Carlyle’s student accommodation development and investment programme, called City Living, in the Netherlands in 2009. A similar venture is being considered in Paris. The group explains: “Carlyle is a strong believer in student housing as a long-term institutional asset class.” Carlyle is not alone. Student accommodation has emerged as one of the property successes of recent years, with favourable supply and demand characteristics — rising student numbers and a shortage of modern, bespoke accommodation — that have left the sector immune to the worst traumas of the economic downturn.
Carlyle is among a rising number of institutional investors targeting student accommodation, particularly in the UK, which is acknowledged as one of the fastestgrowing European markets. According to consultant King Sturge, the number of privately developed, purpose-built student accommodation beds there has increased 21% to 149,014 during the past two years. But there is still an estimated shortfall of 300,000 beds across the UK — 100,000 in London alone. King Sturge calculates that the purposebuilt, private sector provides accommodation for just 9.7% of fulltime students in higher education.
The recent student protests over tuition fees and cuts to UK university funding have undeniably caused concern. But some see this as an opportunity for greater collaboration. One idea gaining currency is that investors could look beyond student accommodation at broader property deals with cash-strapped universities, including the funding and management of academic space and ancillary facilities.
US property is generally still shaken by the country’s wider economic problems but, as CB Richard Ellis (CBRE) says of the healthcare real estate investment sector, “positive news abounds”. In CBRE’s annual Medical Office Investor and Developer Survey, 63% of respondents believed that demand for US medical office investments will be higher in 2011 than in 2010 — and last year was particularly bullish. Healthcare Trust of America (HTA) alone completed 24 acquisitions in 2010 — worth a total of $806.9m and consisting of 53 medical office buildings, four hospitals and one corporate office.
As one of the leading specialist real estate investment trusts, HTA might be expected to hit the acquisition trail, especially when the average occupancy in its 2010 haul of assets is a gratifyingly high 96%. But Real Capital Analytics found that 2010 ended with the highest quarterly medical office investment sales volume for two years, bringing the total for the year to $3.13bn.
This sector is well established in the US. In Europe, it remains a niche investment and yet RCA reveals an even sharper rise in investment volumes, albeit off a much lower base: $450.17m last year compared with $81.34m in 2009. The size of the respective markets may differ but broadly the same imbalance of supply and demand applies on both sides of the Atlantic, which provides the enduring appeal to investors.
New research by consultant Knight Frank suggests that, with its strong income-generating characteristics — including fixed index-linked annual rent increases — the UK sector will do well in a recovering property market despite some operators struggling with debt. According to Investment Property Databank, UK care homes delivered total returns of 2.1% a year between 2007 and 2009, against All Property total returns of – 8.0% a year over the same period. Not surprisingly, Knight Frank says, healthcare has since attracted increasing numbers of international investors, as well as the re-emergence of specialist funds, such as MedicX and BlueSky Global Investors. Niche or not, this is a sector to watch.
So much has been written and said about the ageing populations of many European economies there should be little argument against the investment merits of retirement housing. Compared with some parts of the world, however, European retirement housing is in its infancy.
In a recent study on the sector, consultant Knight Frank points out that bespoke retirement villages have been popular for decades in the US, South Africa, Australia and New Zealand. It is estimated that 5% of older Americans and 3% of Australian seniors live in purpose-built retirement communities. The evidence from the US and Australia is that retirement villages can offer benefits to society as a whole because residents release under-occupied properties for sale and this creates a valuable stream of family homes back into the wider house market. In markets such as the UK, however, what impetus there was in the growth of retirement housing was lost during the downturn of 2008.
Though the UK market is recovering slowly, housebuilding generally remains at an historic low, and the level of new retirement housing is paltry. In October last year the Home Builders Federation, which is the main industry body, disclosed that just 500 new homes for older people had been built over the previous two years. Official UK government forecasts suggest that 10 million people alive today will become centenarians. That is nearly one in five of the UK population. Converts to retirement housing cling to such compelling statistics.
Writing in the Knight Frank report, Nick Sanderson, chief executive of leading operator Audley claims that retirement villages will be “the fastest growing development sector of any kind in the UK”. He adds: “It is impossible to consider the demographic reality of our ageing population without concluding that the potential expansion is anything other than significant.” To put it in context, just to achieve the same proportion of older people in retirement villages as one finds in Australia, the UK would need an additional 600,000 village units now. As Sanderson says: “The fact is that this is going to be a longterm growth sector.”
This article was taken from MIPIM Daily News 2. Read more here.
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