Social trends drive alternative investing

5:00 AM Saturday July 15, 2017 True Commercial

Retirement villages are becoming big business as the Baby Boomer generation moves into the elderly years. Photo / Supplied

Research by Bayleys’ international affiliate, property analysts Cushman and Wakefield, suggests that investor strategies need to reflect on how the world is transforming and act on emerging social trends.

Alternative asset classes identified by the research include student accommodation, retirement and healthcare facilities, data centres, self-storage complexes and car parks.

Bayleys national director commercial John Church says these are all growing segments of the New Zealand commercial property market and, along with other emerging industries, such as childcare centres and food and beverage, they are increasingly on the radar of investors in this country.

“The ‘alternatives’ asset class is intrinsically linked to social and demographic trends,” Church says. “Alternatives tend to offer strong investment fundamentals, such as longer leases than those offered by some more mainstream sectors. But the actual drivers behind their performance are wide-ranging, covering anything from global economic uncertainty to ageing and health. Current market conditions are also encouraging investors to look at ways of deploying capital more creatively.”

Church says the following summarises the key factors in play for some of the main segments of the alternatives market”

Student housing

Rating: Four stars

Demographics: With 85 per cent of young people completing higher education courses in the OECD, the volume of international students is rising. Favourable demographics also boost numbers of domestic students.

Government Influence: Flexible immigration policies attract international students to a country, while lower tuition fees tend to increase the number of both domestic and international students.

Changing lifestyles: Asia is now the key source market for international students as a result of its emerging middle class. Middle class students favour higher quality residences, and occupier demand overall is becoming more sophisticated. With trends in the sector constantly changing, there are more opportunities for investment into the purpose-built student accommodation sector.

Senior housing and healthcare

Rating: Five stars

Demographics: Ageing populations are boosting the demand for retirement care.

Urbanisation and development: Health expenditure as a percentage of GDP has been rising by an average of 8 to 9 per cent in the OECD over the past decade. Rising incomes have led to higher expectations with regards to the quality of care a person receives.

Technology and mobility: Technology has advanced the quality of healthcare provision through innovation and the creation of new products. This has led to an increase in healthcare revenue, with investment demand focusing on modern, future-proofed stock.

Changing lifestyles: The recent increase in healthcare expenditure has been driven by the rise of chronic diseases, ageing populations and the greater focus on quality of care. Both the health and life sciences sector and the care home sector have grown strongly as a result.

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Consumers are said to be turning to self-storage as a result of the reduced average household size. Photo / Supplied

Data centres

Rating: Three stars

Demographics: The growth in use of technology from both the Millennial and Baby Boomer generations has led to the proliferation of data needing to be stored and analysed.

Urbanisation and development: Data centres are found in developed areas as they require a stable physical, economic and political environment with an active client base, traditionally near a financial centre. As competing locations evolve, more locations will meet the criteria for future data centre development.

Technology and mobility: With around 3.5 billion people using the internet today, the growth in reliance on technological devices and broadband has driven demand for bandwidth from data centres to cater for the needs of houses and offices.

Car parks

Rating: Four stars

Demographics: Wealthy Baby Boomers have had historically high levels of car ownership. This demographic group is likely to continue driving to an older age than previous generations as a result of increased life expectancy and other social changes.

Government influence: Low interest rates have led to higher economic growth and cars becoming more affordable. Despite most governments attempting to limit parking spaces to shift demand to public transport, CBD parking is set to remain lucrative in the years ahead.

Technology and mobility: As technology advances, the car parking business is being transformed. The arrival of electric cars could see a change in requirements, and a need to incorporate charging stations. In addition, autonomous cars will drive the sector forward in the long term — producing winners and losers.

Self-storage

Rating: Three stars

Demographics: The asset class is driven primarily by life events. Examples include divorce, moving house and going to university, with people using self-storage as a temporary location to store their possessions. Baby Boomers are expected to boost demand further as they begin to downsize their houses.

Urbanisation and development: Consumers turn to self-storage as a result of reduced average household size, while businesses have begun to use it as an alternative to warehouses. There are future opportunities to enter urbanised markets with untapped demand.

Changing lifestyles: Recent statistics demonstrate that people are starting to use self-storage units for longer periods of time.