Investment in alternative property sectors looks set to take off across Europe. Increased urbanisation and changing demographics, such as aging populations and greater populations of international students, have been put forward as key factors.
The alternative property sector covers such opportunities as investment in student housing, self-storage and development such as the large-scale construction of healthcare (care homes), residential and hospitality units. Hotels and resorts are among the most sought-after investments in the alternative property market globally.
Into 2017 and beyond, this trend looks set to continue. If youre looking for your next lucrative investment opportunity, look no further than the alternative property investment sector.
Why the interest in alternative property sector investments?
Traditional property investments refer to the main commercial property types of retail, office and industrial property units, but rising competition for the best assets in these markets is out-pricing many investors. Instead, were seeing investors prepared to take more risk in the hope of making higher returns. Theyre also partnering with strong local players in order to access niche markets.
The UK is leading the charge: according to experts in international property investment Gerald Eve, alternative sector transactions accounted for half of all property portfolio investment activity in 2016, a total value of nearly 4 billion.
This trend, they write, “is in line with the wider investment market where alternative investment markets accounted for… an impressive 19% in 2016. Alternative sector property investment portfolios also accounted for all big-ticket deals over 500 million, a threshold no other sector was able to match.
Key attractions in these alternative sectors include long leases, indexed rent reviews, better covenants, and the potential to diversify portfolios. Investors are particularly looking to move on from cyclical capital growth to long-term, stable, income-producing investments. Investing in speciality and niche property assets can help investors weather unforeseen market turbulence and absorb fluctuations in other areas of their property portfolios.
What opportunities are there to invest?
Property investors looking for potentially lucrative investments off the beaten track should look no further than these five offbeat property investments:
- Student accommodation: in London in the 2013-14 academic year, there were 367,000 students but just 70,000 purpose-built beds. As demand for purpose-built accommodation continues to increase, lucrative opportunities for investors follow suit. Vita Student offers investments across the country with a promised 35% net return over five years.
- GP Practices and medical centres: primary health care infrastructure, principally properties let to GP practices and other parts of the NHS is one fast-emerging market for property investors. One trust is MedicX, which reports a 7% return on investment. The trust trades at a large premium, but it is government-backed meaning revenue is relatively secure.
- Care homes: accommodation for the elderly is being marketed by developers who claim private investors can buy rooms in newly-built homes for as little as a 35,000 initial outlay. As demand for assisted living facilities drives the construction of more purpose-built facilities, opportunity is only likely to increase. Investors are often promised returns of 10% or more.
- Hospitality: the tourism and hospitality sectors report growth year on year. In the UK, hotel rooms come with a 8% rental guarantee. Opportunities outside the UK include investment in government-approved real estate in foreign locations like Grenada, where investment is made in exchange for economic citizenship.
- Freeholds: the Freehold Income Authorised fund buys property freeholds, mainly from property developers, and profits from the ground rent paid annually by leaseholders. In 2015, the fund yielded 4.9%.
Are alternative property investments futureproof?
Alternative property specialists at Knight Frank reported that in the weeks following the Brexit vote they had never been busier. This is largely attributed to the fact that investors, facing a British withdrawal from the UK, looked to avoid the volatility and uncertainty surrounding traditional retail and office properties. It is suggested that investing in alternative property types carries less risk, but no investment is futureproof.
Investors should always remain mindful of the ongoing uncertainty in the wider property investment market (cc. Brexit and the upcoming General Election), as well as the ease of entry and exit. Nevertheless, the UKs alternative property investment market is fast finding its feet. Combining long-term strategy with the specific nuanced details of an alternative asset can still lead to above-average returns.