Widening the Investment Net

Interest in so-called ‘alternative property assets’, such as healthcare, hotels, student accommodation, privately rented housing, and infrastructure has never been so pronounced. According to research by JLL, alternative assets account for 5% of institutional investors’ portfolios at present, but that number is set to rise to 15% by 2023.

Some investors are looking to diversify their portfolios; others are attracted by higher returns and yields; some by the availability of long, index-linked leases that match their requirements. At an event held by the British Property Federation and JLL today, key industry figures will talk about these drivers, and whether alternative assets will play a much greater role in property investment in the future.

As the UK demographic changes, and an ageing population, an international student base and Generation Rent emerge, the healthcare and private rented and student accommodation sectors are becoming attractive to a range of investors. The panel will today discuss what is driving this increased appetite, and whether these assets offer sustainable investment solutions.

Liz Peace, Chief Executive of the British Property Federation, said: “Having recently launched a student accommodation committee, we are aware of the growing demand for alternative assets and for new income streams. As new asset classes emerge it is important to identify and discuss potential problems areas so that we can understand them fully and ensure that they are brought onto a level pegging with more traditional outlets such as office and retail.”

Bill Hughes, Managing Director of Legal & General Property, commented: “We view the rise of alternative real estate sectors, ranging from residential, care homes and student accommodation through to leisure, as an important tool for fund managers looking to maintain the diversification benefits of property as an asset class and manage structural change as well as a conduit for injecting much needed investment into the UK’s social and economic infrastructure. As these emerging sectors in turn become mainstream, there are a number of important implications for how we define the property universe. As part of this, we should expect to see the up-skilling of fund managers to provide their clients with in-depth knowledge and understanding, as well as a full range of risk/return solutions.”

Kenneth Mackenzie, Managing Partner of Target Advisers, said: “The importance of specialist investment vehicles with diversified risk profiles and specialist managers is key to wise investment in some of these niche areas. While the background demographics in healthcare are persuasive, specialist and in depth knowledge is key if the mistakes of the past are to avoided in the future. The underlying client group are residents and families in distress, served by lowly paid staff, and moderate long term rents and returns are key to sustainability. Investors need longer memories.”

Jon Neale, Head of UK Research at JLL, said: “We estimate that today, institutional investors have circa 5% of their portfolio invested in alternatives. Based on a survey we carried out among fund managers during the middle of last year, we expect this to rise to around 15% by 2023. Our respondents suggested that this would be driven mainly by a greater need for diversity and the availabililty of the very long, index-linked leases that match pension fund requirements. However, it also identified some issues with the sectors – in particular the lack of data and information and the need for skills beyond those of the traditional property investor.”