Alternative real estate investments: 5 asset classes to focus on
Alternative real estate investments have become an important component of diversification strategies due to the consolidation of various asset classes that are opening up promising long-term growth prospects.
Alternative real estate investments offer an opportunity to diversify one's portfolio and achieve attractive returns, especially when compared to traditional asset classes that are prone to greater volatility during periods of economic uncertainty.
That’s because alternative assets are typically countercyclical, meaning they are not significantly influenced by slowdowns in economic growth or recessionary periods. This makes them attractive to many investors, particularly during times of market turbulence such as the present, and as a hedge against inflation.
It is also worth mentioning that integrating ESG principles into such assets is relatively easier and faster as they are often new developments. Moreover, these assets have the potential for significant social impact as they are closely tied to social and demographic trends.
Student housing is one of the main alternative asset classes within the real estate sector. In Italy, this sector is experiencing rapid growth and presents an excellent opportunity for attractive returns thanks to a steadily growing demand.
In our country, the gap between the demand and supply of student accommodations remains substantial. Consider that in the academic year 2021/2022, the number of university students surpassed 1.8 million, with almost half of them being non-residents.The existing capacity of approximately 60,000 beds can only fulfill a small fraction of the overall demand. As such, it is evident that this sector presents significant opportunities for growth and, subsequently, profitability.
It is also worth noting that student accommodations present an excellent opportunity for geographically diversified capital allocation, as they are rapidly expanding not only in major cities but also in secondary ones.
RSA & Senior Living
Another highly lucrative alternative sector to consider is that of elderly residences. In Italy, the aging population, coupled with declining birth rates, has led to a substantial increase in the demand for services and housing options that cater to the well-being of older adults. According to Nomisma, it is projected that by 2060, individuals aged 65 and above will account for 34.3% of the population, while those aged 80 and above will reach 16.1%.
It's the so-called "silver economy”, one of the main trends driving investments. However, just like in the case of student housing, the elderly care industry also shows a substantial gap between demand and supply. Currently, the existing facilities are only able to meet a small percentage of the overall demand.
Investing in the development of housing and facilities that cater to the needs of a significant portion of the Italian population represents a highly promising opportunity. This investment specifically targets nursing homes and residential care homes.
Among the alternative real estate investments, investing in data centers means allocating capital into a key component of modern society. In today's interconnected world, the reliance on data centers and their expansive storage capacity has become indispensable. To put it into context, the global generation of data surpasses 2 quintillion bytes per day. With this trend expected to increase, investing in this asset class presents a highly appealing opportunity.
The rise of data centers as attractive alternative assets to invest in is attributed to their capacity to generate consistent income streams via long-term contracts. Moreover, investing in data centers can play a key role in fostering sustainable development. While data centers are notorious for their energy consumption, the increasing pressures to improve their energy efficiency presents a compelling opportunity for investors: optimizing their efficiency could enhance the investment from an ESG perspective.
The surge in TV series production and the rapid growth of content creation, spurred by the pandemic, have created a pressing need for dedicated production spaces. Forward-thinking real estate investors have identified this trend and are progressively reallocating significant allocations of their capital to tap into this asset class.
It is important to emphasize the evolving nature of renting such spaces over the years. Previously, it primarily consisted of short-term rental contracts, but there has been a notable shift towards long-term space requests in recent times.Previously, it primarily consisted of short-term rental contracts, but there has been a notable shift towards long-term space requests in recent times. Netflix is a great example of this trend, being one of the first streaming platforms to engage in long-term agreements for renting studios to shoot their TV series, creating real production hubs scattered globally.
Additionally, investing in studios can significantly bolster the ESG credentials of investors. Just consider the profound impact that these studios have on job creation, thereby fostering local economic growth and development.
Build to Rent (BtR)
Build to Rent is a new real estate alternative investment model that’s transforming the residential market. This strategy involves investors and developers constructing residential complexes with the explicit goal of retaining ownership and profiting from the rental of housing units with medium and long-term contracts.
In Italy, where a significant portion of the population owns their homes, this model may appear unconventional. However, due to rising mortgage costs and difficulties in obtaining them, as well as the younger generations' desire for flexibility and mobility, the Build to Rent approach is emerging as a successful strategy and gaining prominence in investors' portfolios.