Alternatives set for encore stellar performance in 2018

The UK commercial property market is notoriously dynamic and fast moving but one area that has been particularly intriguing to observe is the growth of Alternatives into a mainstream asset class from the emergence of student housing in the 1990s, to the sector today accounting for £15.7 billion*.  At our recent annual Alternatives Predictions event we talked about what the big themes are in Alternatives – which now incredibly make up over 25% of the market.  I always knew they would get bigger!

JLL’s own unique positioning across the Alternatives sectors and the scale of our involvement – having transacted 32% of Alternatives deals in 2017 – enables us to offer added transparency and deliver value across each sector.  Our key prediction for 2018 is that Alternatives will continue to outperform mainstream commercial property as investor demand looks set to increase amid economic uncertainty and weaker prospects for commercial sectors.

Thanks to growing investor appetite, our Survey respondents anticipate holding an allocation of 34% by 2020.  This is equivalent to an additional £10bn of investment into Alternatives above existing levels over the course of the next two years.  Not only is this a significant proportion of the overall commercial real estate market, it also suggests a continued increase in Alternatives market share.

Investors are increasingly aware of the core fundamentals that support Alternatives, as well as the benefits of higher returns and long dated income.  However, the biggest factor likely to boost the development of Alternatives is the evolving amount of data and analysis available to help clarify risk to our investor clients.

Lack of supply will remain a challenge for Alternatives investors, whether in finding suitable product to acquire or sourcing an operational partner to work alongside.  As a result we expect to see further innovation this year, leading to investors finding new ways of entering the market. Operators will look to transfer expertise into similar sectors, resulting in more mixed-use Alternatives developments.

Our 2018 Alternatives Predictions by sector – click here to read more

Student Housing
Investor focus on student housing in well-supplied regional markets will turn to the redevelopment of existing university owned stock.

Private Rented Sector (PRS)
More than £3 billion of deals, with institutional investors and the public sector taking a more active role.

Retirement Living
Pension fund investment to deliver new tenure models and more mid-market developments.

Healthcare
More than £4 billion to be invested across care homes, primary healthcare and specialist markets which provide long-term, inflation linked income.

Leased Hotels
Investment levels to remain stable after a stronger than expected 2017.

Self Storage
£250 million of deals in the UK and £250 million in Europe as the sector increases in size.

Data Centres
Operational data centre M&A activity to increase, and £200 million of real estate data centre investments in 2018.

Automotive
Increased competition for sites will result in robust investment activity and scope for further yield compression.

*According to our 2017 research

 

About the Author

Chris has over 30 years’ experience in the UK investment market and specialise both in up and let investment product including portfolios as well as development funding projects. Chris has worked with a wide range of institutional property company and international clients including GIC, M&G, Hermes, Schroders and Legal and General. Chris has also been at the forefront of the development of the Alternative Investment areas within JLL (Student Housing, Health, Senior Living and Platform deals). Within the JLL Capital Markets offer the investment teams now work hand in glove with the sophisticated Debt Advisory business and the Corporate Finance and M&A side. Chris was Chairman of the Investment Property Forum from June 2015 - June 2016 and now sits on their Strategic Advisory Group. Chris joined King and Co as a graduate in 1979 and has worked his whole career dealing with various aspects of the UK Investment Property Market. He ran the Investment teams at King Sturge and became Joint Managing Partner and subsequently Joint Senior Partner prior to the merger with JLL in 2011.

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