Alternative residences offering 'unique investment'

Alternative residential assets, including student housing, build-to-rent and senior living have continued to represent a unique opportunity for investors looking to diversify as other sectors falter.

Investment in alternative residential assets accounted for 27 per cent of global real estate investment in the first three quarters of 2020.

GALLERY  

The operational, or alternative, residential asset type comprises student housing, build-to-rent and senior living, according to Savills 2020 Global Living Report.

Examples of “mega-trends” shaping investment allocations include the ageing population and housing for students and multifamily.

The rapid increase in investment across the year, due in part to reduced cyclicality and exposure to the mega-trends, has pushed investment in the sector up from just 16 per cent of the market share a decade ago.

Capital targeted at the sector from funds has risen by 60 per cent in the last four years, from $16.4 billion in 2016 to $26.3 billion in 2020.

Cross-border investment into the operational residential sector has also grown to be $46 billion over the past twelve months and accounting for 22 per cent of total investment in residential property, up 14 per cent compared to 2016.

Savills Australia director Paul Savitz said investment in the operational residential sector had been largely driven by the consolidation of companies across sub-sectors including multifamily and student housing.

“Despite the near-term effects of the pandemic from a macro-economic point-of-view, the longer-term growth in capital volumes targeting operational residential assets speaks for itself.

Investors are not only seeking to diversify their real estate portfolios but are looking for those stable income-streams for which the sector has become so renowned.”

Multifamily assets proved to be the largest of the global residential sub-sectors over the year to date, with $223 billion traded.

Also known as build-to-rent assets, multifamily assets operate in contrast to build-to-sell, where a developer builds apartments to sell them, not to hold them back and rent them out.

While the multifamily market remains nascent in Australia, Savills anticipates that in Australia the sector is on track to deliver upwards of 10,000 apartments by 2023, with the completion of 45,000 multifamily apartments projected by end of 2028.

Over the past 12 months, more than 30 major build-to-rent projects with an average size of 365 apartments totalling 11,667, were confirmed.

Savills said multifamily yields were now stabilising in most markets following a significant inward yield shift trend over the past five years.

“It is expected that as federal and state governments adapt rules pertaining to tax and planning to make investment into the sector more attractive, investment volumes will begin to match western European countries by 2025,” Savitz said.

Like multifamily globally, consolidation has been a key driver in the student housing sector in Australia, which has recorded record investment volumes for 2020, which are forecast to total $3.1 billion, an increase of 115 per cent on 2019 levels.

“Student housing also proved its resilience despite the headwinds brought about by Covid-19 and, as a result, the effects of disrupted school and University terms,” Savills Australia national director of student accommodation Conal Newland said.

“With the long-term picture showing an uptick in global mobility, we expect significant opportunities to remain for investors wishing to diversify their real estate portfolios.”

Healthcare real estate has also presented a very attractive opportunity set, with strong demographic and economic tailwinds and demand outpacing supply.

The sector has offered attractive income property yield against traditional property sectors, as well as defensive characteristics and a favourable risk-adjusted return profile.

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