Pan European Summit
Queen Elizabeth Olympic Park, E20 3BS, United Kingdom
Monday, 24 February 2020
INVESTMENT: ARE ALTERNATIVES REALLY THE NEW CORE?
Purpose-built student housing, coliving, and hybrid models are in the spotlight of alternative asset classes. Opportunistic investors and pioneers in PBSA have been quick to respond to this market development. Within The Class community alone, we’ve confirmed that leading investors in the niche residential ‘blended living’ asset classes are poised to invest around €25 billion globally over the next 3-5 years.
The Class Pan-European Summit will put investment in the spotlight as we join forces with Yolande Barnes, from UCL’s Bartlett Real Estate Institute. Yolande argues that alternatives with resilient business models should be assessed in a different light as value can increase and risk can be mitigated with a long-term perspective. With proper assessment capturing a new territory of environmental, demographic and technological risks and a long-term perspective, alternatives may deserve a lower risk profile, which will incentivize investors to deploy more money in the market. Will this be an innovative solution that can potentially solve the housing crisis?
The Class of 2020 will bring together the investment experts who will bring case studies to the table. The case studies and discussions will explore institutional investors’ opinions on the risk in residential models and provide evidence as to whether this shift towards alternatives is really happening.
Are alternatives really the new core?
What is the perceived risk and opportunity of mixed use and operationally complex real estate assets for the institutional investor?
Will there be a shift to a long-term investment outlook that can encourage living innovation?
PANEL: Are Alternative Investments Really the New Core?
PANEL: Focus on European Markets
it is still challenging to achieve industry consensus on the question “are alternatives really the new core?”. The operational element of alternative real estate investment, which once made it look risky to institutional investors, is gaining acceptance as capable of managing the human aspect of real estate. Still, proof of concept and guidelines will go a long way to securing widespread comfort with new operations heavy models as well as mixed-use communities outside of city centers. Rigid planning use classes remain a perceived barrier to the introduction of blended and hybrid models for many in markets where single-use presents yield opportunities. To future-proof the industry, continued attention must be paid to the features that can make real estate resilient for the long term, independent of the asset class.
- What makes alternatives, alternative?: The jury is still out on how our industry perceives risk in alternatives. Much depends on how we define and classify alternatives.
- A turn towards long-term: That said, it is evident that securing long-term rental income in real estate is becoming increasingly important due to a low stable interest rate environment which doesn’t allow for serial real estate trading and financial institutions’ obligation to pay the pensions of baby boomers.
- Operations in the spotlight: Future-proof real estate will require the flexibility to manage not just bricks and mortar but the whole range of human activities that take place inside of it. This puts emphasis on the operational element of shared living models.
- A call for industry guidelines: Strong alignment between investors and operators is seen as crucial to ensure value creation and mitigate reputational risk. Frameworks, guidelines and best practices can help accelerate investor comfort with operational assets. We can find inspiration in recent operations guidelines produced for the BTR and Later Living sectors.
- Opportunities for product diversification: Blended living concepts are perceived by investors as an opportunity for product diversification. The ease of conversion to office, residential or hotel lowers perceived risk of shared living models.
- Undervalued areas unlocked by bold movers: Bold investors and developers are initiating mixed use, highly amenitised communities outside of the center of university cities, where investors have typically not been comfortable. It is speculated that once customer appetite for new ways of living is evidenced through successful case studies, investment in communities in such locations will quickly increase.
- Young and old: While age isn’t everything, demographics trends can tell us about future demand for living models in European cities. In 2029, Europe’s top ‘youthful’ cities will be Edinburgh, Amsterdam, Toulouse, Oslo and Dublin. The top ‘aged’ cities will be Genoa, Dresden, Bilbao, Leipzig and Valletta.
- City is king: While Ireland, the UK and the Netherlands remain attractive due to the liquidity of these markets, PBSA investors are interested in Italy Spain and Portugal as they offer a yield opportunity due to the imbalance of supply and demand. However, when taking a long-term perspective, it is increasingly important to adopt a city-based, rather than country-based, outlook. Significant risks to real estate such as flooding, property obsolescence and migration patterns will be experienced on a city level.
- There is no core: Given the predicted landscape of risks to real estate, the question should perhaps not be whether alternatives are the new core, but whether there is a core at all. Blended living players are encouraged to look beyond yield in evaluating the long-term risks to real estate assets.