Shift in demand toward historically less-trodden areas of the property market that offer superior returns, something that has become increasingly important to property investors facing record-low yields around the world. These alternative sectors include co-living, student housing, self-storage, education and data centers. Areas with either defensive qualities or that run on less cyclical demand drivers are likely to present the best opportunities at this point in the cycle. While investing in these properties can come with hurdles, robust returns and long-term stability are drawing interest across the region. Although Asia Pacific’s alternative real estate market is still relatively immature compared to Europe and the United States, interest is growing fast.
Alternatives sectors typically offer stronger returns than more traditional real estate. While the range can vary, estimated yields on alternatives, such as data centers, sit anywhere from five to eight percent in Tokyo, Sydney and Singapore, representing a healthy spread compared to traditional asset classes. Stability is a factor. Operating leases of aged care homes, schools, and data centers often extend over 20 years, providing a stable income stream that lessens the impact of market volatility. Clearly, different countries present different opportunities. Education and student accommodation sectors are well-positioned to grow in Australia, China, India and Southeast Asia. In Asia Pacific, the various alternative sectors sit across different levels of maturity, so understanding market fundamentals and operational capabilities can also pose as a challenge.