CoStar Column: Alternatives - the new mainstream

By Richard Yorke - Wednesday, May 09, 2018 12:50

The soaring popularity of ‘alternatives’ shows no sign of fading. Spending on these types of properties rose 36% Y-o-Y to £3.1bn in Q1 2018.

Spending on ‘alternatives’ reached record levels in 2017 – over £16bn – and comfortably exceeds investment directed at both Industrial and Retail sectors. Foreign investors were especially active in Q1, accounting for over half of investment. They have been attracted by a combination of strong fundamentals and favourable exchange rate.

The standout deals in Q1 were Canada’s Brookfield’s acquisition of the Enigma student housing portfolio and SACO serviced apartments portfolio, for about £900m in total. There were a clutch of other large student and hotel deals in Q1.

For example, LRC bought a number of Hilton and Mecure operated hotels from Lone Star. Overall, annual spending on student housing and hotels more than doubled compared with the previous 12 months. The hotel subsector was a standout performer in Q1 2018, with volumes trebling Y-o-Y to £1.8bn and accounting for a record 15% share of all investment.

Investors also continue to target the BTR (Build-To-Rent) and Healthcare properties and operators, spending nearly £4bn in 2017. Notable deals included Select Property Group’s investment into the Affinity Living PRS scheme in Manchester for £247 million, and Legal & General’s acquisition of the Renaissance Villages Portfolio for £51 million. Investors are attracted to the big long term demographic fundamentals, not least a growing and aging population. But also the high returns and secure income streams generated by the associated business and operational models.

Consequently, further capital is likely to be deployed this year and CoStar News has identified numerous transactions and projects in Q2. For example, Legal & General announced the launch of its Affordable Homes division in April. Analysis of investment volumes in the US suggests that the upside for institutional residential investment is very substantial. The multi-family sector is the largest property type in the US, accounting for about a third of CRE investment.


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