Alternative real estate sectors, like self-storage and data centers, over the last decade moved onto the radars of major real estate investors hunting for returns in a booming market.
One major hurdle they found when looking into these relatively niche alternative real estate sectors: a lack of reliable data.
But a subsequent push for better transparency is transforming these alternative real estate sectors. A dozen countries globally currently have significant levels of institutional investment, with real estate investment trusts often leading the way, according to a recent biannual transparency study by JLL and LaSalle . Another 54 countries reported at least some institutional investment in niche property types.
There is a strong correlation between the increased investment in alternative real estate sectors and increased transparency, says Matthew McAuley, Director, Global Research at JLL.
“Investor activity in these niche sectors and improved transparency tend to be self-reinforcing,” he says. “Investor interest drives a greater need for market information, while enhanced transparency allows investors to understand and thus allocate capital to these property types.”
Among the 12 niche sectors included in The Global Real Estate Transparency Index 2020 report, cold storage, self-storage, life sciences, medical office, and data centres have seen the most growth in interest. Cold storage in the Asia-Pacific region is growing especially fast, while global investment in self-storage rose to US$6.4 billion in 2019, from less than US$500 million a decade earlier.
The report shows that many of the improvements have been in the already “Highly Transparent” countries, which tend to have higher institutional and public-market ownership of these property types.
The world’s most transparent markets of the U.K. and U.S. have shown most activity in these sectors, where data providers have also been active. Investment research giant MSCI has started incorporating medical offices in its quarterly index reporting. The National Association of Real Estate Investment Trusts is now publishing rent collection rates for U.S. healthcare properties.
While some alternative real estate sectors have taken a hit from COVID-19, experts expect interest to continue, bolstered by global megatrends like housing affordability, ageing populations and increasing reliance on technology.
Niche real estate sectors tend to have more defensive cashflows, which have proven more resilient in past recessions, says McAuley.
“Going forward, this characteristic is likely to be especially top-of-mind for investors as we recover from COVID-19,” he says.
Cold storage, self-storage, data centres and life sciences have proven particularly resilient through the current recession, with REIT indices for all four of these niches outperforming all-property indices in the U.S. during the first half of 2020.
REITs and other listed entities are important drivers of transparency, because they are compelled to report more information and because many are involved in niche sectors. In the U.S., over 65 percent of REIT market capitalisation is in trusts which invest outside the four main real estate types.
Room for improvement
The report shows that even nations in the “Highly Transparent” category can achieve growth in transparency, as did France, Sweden, Germany and Ireland this year.
“Even in the most information-rich markets, investors face enormous uncertainty and are hungry for data that helps them make better decisions,” McAuley says. “I think the continued increase in transparency in markets where information is already high is a testament to the fact that there’s always room for improvement.”
Medical office and life sciences are two growing niches where there is high demand for clean data. The challenge often being how to disentangle information for these niches from the conventional office sector, with which their data is sometimes lumped together.
Data on senior and student housing is currently in high demand given that both have been impacted by the pandemic, says McAuley. Meanwhile cold storage and parking attract requests because there is “relatively little consistent market data at present,” he says.
The survey measures the availability of niche sector data in three areas in addition to investor activity: inventory and construction, rents, and market transaction pricing.
Of these, rent and transaction pricing data is the hardest to come by. And with the use of big data and advanced analysis techniques still at an early stage across the industry, it’s likely that much data collection will continue to be dependant on traditional methods, says McAuley.
“However, as operators increasingly turn to digital tools to manage properties and integrate sensors and other technology into buildings this will generate more data to drive additional transparency improvements,” he says.
The pandemic is pushing the real estate industry to gather and measure real-time data as landlords, investors and governments look for tangible ways to track market performance.
The amount of data available to property professionals has risen steadily in recent years amid an increased adoption of technology, known in the industry as proptech. But despite the hype around the transformative potential of big data, widespread use of the insights has remained a work in progress.
Now the pandemic has renewed the focus on technology and real-time data. From analyzing rent-collection rates, to monitoring crowds in malls and understanding space utilisation in offices, the pandemic has prompted more property industry players to use proptech to deliver real-time data outputs.
“What we’ve seen around COVID-19 is more adoption on the hardware side where landlords have had to quickly re-specify buildings,” says Matthew McAuley, director in global research at JLL.
High-frequency data in particular is in demand to help make decisions – especially relating to health, mobility and space usage.
In offices, data has helped companies to enable contactless movement, track who’s there at any time, and monitor cleaning frequency. The benefit of such insights in a time of crisis is wide-reaching.
“For landlords, data helps them see how they sit among their peers,” McAuley says. “For governments, it’s about seeing where the distress is, and for investors it’s about pricing and strategic implications.”