Alternative real estate assets

Diversification and mutualization of risk are particularly sought in these times of crisis and instability. At a time when rates are low and yields are getting lower, investors (including management companies) are moving towards new types of real estate assets uncorrelated to economic cycles. They meet the new structural needs of real estate and offer more attractive rental growth.

Alternative real estate assets: a response to new structural needs

The real estate funds analyzed by Rock-n-Data are heavily invested in office assets, retail assets or logistics   assets. These types account for the majority of investments and mainly compose the assets of real estate funds.

With those new challenges, traditional real estate must reinvent itself and adapt to the constant changes in daily needs. It also has to deal with the rise of new typologies that meet new expectations, new consumer demands, technological innovations and a growing servicial need.

Alternative assets then include managed residences (students, seniors, tourism), coliving assets (students, young workers, seniors),  healthcare assets (clinics, EHPAD, medical property), assets related to children and education (schools  and  nurseries) or real estate 4.0 via data centers.

They have the advantage of being uncorrelated of economic cycles by focusing on long-term trends such as an aging population, a growing need for proximity, a shortage of student housing or data storage needs.

According to our study published last March "Real Estate Funds Market overview",  these alternative assets represent more than 12% of the assets of the real estate funds analysed (based on 165 funds analysed and 12,000 assets identified). According to our study, the enthusiasm was confirmed in 2020 as they accounted for 13% of the investments realised.

Healthcare real estate as a leader

Their portfolio is composed of clinics, laboratories, medical centers or nursing home. These real estate assets are leased to healthcare professionals and operate in a dynamic and constantly changing market.

Health real estate also has the advantage of being largely disconnected from economic cycles. In other words, the prospects for economic growth have little impact on the value of these assets.

Investment in health helps meet the needs of a socially useful sector, in partnership with public and parapublic actors. Some management companies have also adopted charitable measures, such as a Healthcare SCPI which donates a 0.01% share of the annual collection to the Brain and Spinal Moelle Institute (ICM), which specializes in research into neurodegenerative diseases.

Health real estate is an excellent lever for real estate diversification. The offer is still quite limited and is led by real estate and specialized management companies. There are also a few private operators who are adept at real estate outsourcing. This type of operation offers great opportunities as many operators opt for outsourcing their walls to investors (Sale & Leaseback).

Recent health events coupled with an aging population are creating structural growth in needs and transformations. These new challenges revolve around improving the quality of the patient or the shortage of beds in a particularly high-administered sector. It also offers great prospects and important development opportunities.

The aim of investors is to optimize their real estate asset portfolio by targeting cash-flow-generating players able to respond to these many health issues. These players have a solid financial health, 12-years long leases and are largely resilient in times of crisis.

Investing in early childhood through nurseries

Private nurseries are significantly growing. The demographic trend makes investment in nurseries assets relevant and profitable. The birth rate is particularly dynamic in France with a constant increase in the population. Between 2012 and 2017, the French population grew from 64 million to 67 million (source INSEE), making it one of the most fertile populations in Europe with 1.93 children/women (source INSEE).

Many families are looking for a nursery for their children, making the early childhood market buoyant, profitable and promising.

The development of networks of nurseries is becoming more and more professionalized with the appearance of many establishments over the last decade. Even though public and association structures are still in the majority, private institutions are becoming increasingly important, thus constituting a real investment opportunity for real estate fund managers. They benefit from a solid tenant while responding to a social problem.

New generation of homes adopt coliving

Managed residences have been part of a strong trend for several years. The government's difficulties in responding to the issues of social housing or students housing are bringing out new private actors who are adept of coliving.

Consumption patterns are changing and new ways of living together appear. The all-inclusive approach (internet, TV, electricity, water, insurance...) and access to common areas (sports rooms, break room, kitchen, video game room...) within these new generations residences offer residents an extremely competitive value proposition.

These managed residences are intended for students, young workers or individuals in the so-called transitional phase away from home or looking for social ties. This last need, strongly acclaimed by a youth alone behind their screens, was amplified in the context of the health crisis.

The active and service-based mode, vectors of performance and successful customer experience, are indeed a response to the evolving needs of the population and to changes in attitudes around mutual social well-being.

Datacenters, a response to a structural need

Containment and the health crisis have confirmed the growing need for companies to implement a data storage strategy. The digital revolution of the past two decades has highlighted the exponential growth of data and new needs for infrastructure, transmission networks and storage.

More globally, data allows industries to optimize their operation by making it possible to communicate quickly, connected objects or artificial intelligence. The introduction of these digital levers makes companies more agile and improves the customer experience. Business models rely on data exploitation to trigger even more business and value creation.

In addition, the Covid crisis has accelerated data flows and the development of new digital players. In order to secure this data and ensure that the digital ecosystem works properly, it is centralized in one place: a data center. It is a space (building, room) housing computer servers and remote storage units of company premises (source CBRE). These offer strong development potential, companies are increasingly looking to outsource the management of their data. According to a CBRE study, France is the fourth largest market in the world in terms of the number of data centers. According to CBRE, the volume of data is expected to be multiplied by 5 by 2025, proof of the bright future.

This real estate industry 4.0 nevertheless poses two major problems to which clear answers are expected. A company must be able to be sure of the security of its data, even remotely. High-energy buildings will also be about optimizing an environmental cost that is already far too high.

Typologies accessible to the general public

All these typologies are at the heart of our moments of life, from birth to nursing home. They are therefore essential to the functioning of our people and to our collective well-being. Their emergence are responses to the emergence of new issues and new trends.

Real estate funds open to the public, allowing access to these types of assets, now make this type of investment available to all.

At Rock-n-Data, we support these new real estate trends particularly relevant for our partner investors.

Published in : Commercial Real Estate, Market Studies   By : Rock & DATA   On : May 10, 2021



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