This article is from the Australian Property Journal archive
THE alternative real estate sector continues to be resilient with yields remaining firm compared to core commercial property, but the challenge for investment managers in raising capital will likely drive more strategic joint ventures or consolidation in 2024 because quality acquisition opportunities remain scarce.
According to the latest Australian Alternatives Outlook 2024 report by Cushman & Wakefield, alternative sectors including manufactured housing estates (MHE) and senior rental assets have seen strong operating performances thanks to their affordable nature.
With the healthcare sector estimated to be valued at $40 billion and prime yields in the sector at 4.75%-6.00%, manufactured housing estates at $12 billion with prime yields of 4.75%-5.50% and aged care at $40 billion with freehold yields at 6.00%-7.50% and going concern yields at 13.00% to 15.00%.
While essential services have maintained their medium to long-term investment outlooks even with short-term challenges to operating margins. This includes assets across education, healthcare and aged care sectors.
With investor interest in living sectors remaining uninterrupted locally and globally over the year, aided in Australia by low supply in the residential market.
“In 2023, we witnessed significant contributions to alternative investment volumes, noteworthy among these were instances of first-time scale investments into various Australian sectors,” said David Curtis, co-head of alternatives in Australia and New Zealand at Cushman & Wakefield.
“Build-to-Rent (BTR) remains a focal point, with over 20 institutional managers now active in the Australian BTR sector. The operational performance of complete assets has exceeded expectations, driving strong investor interest.”
“Many investment managers faced difficulties raising capital without identified and secured acquisitions. This challenge is likely to drive strategic joint ventures or consolidation among major players in 2024, as quality acquisition opportunities remain scarce across most alternative sectors.”
Investor appetite for senior living also continued to mount over 2023, attributed to the counties ageing population profile.
“Senior living sectors offer immediate exposure to income through operational asset acquisitions,” said David Bruce-Clarke, co-head of alternatives in Australia and New Zealand at Cushman & Wakefield.
“While mature sectors like retirement living and MHE are attracting significant attention, newer sectors like BTR and co-living present development-led opportunities.”
Interest is also growing for newer sectors including BTR, PBSA, co-living and data centres, though Bruce-Clarke noted that valuation activity shows inquiry is up for sectors that offer immediate access to operational stock and as such income.
“This includes larger mature sectors such as retirement living and childcare alongside niche offerings that sit outside the core realm including emergency services, pathology, court houses and education assets,” added Bruce-Clarke.
“This momentum is expected to be driven by several factors. Firstly, although some relief is expected across the construction industry in 2024, development timeframes remain extended and feasibilities weak in many instances – a hindrance for new entrants in particular.
“Secondly, sectors such as living require substantial scale to achieve management efficiencies while sectors such as data centres require highly specialised and capital-intensive management”.
The data centre sector size is estimated at $25 billion with a prime yield range of 4.75%-5.50%, PBSA at $20 billion with prime yields of 4.75%-6.25%, BTR operational stock at $5 billion with prime yields of 4.25%-4.75% and co-living at 4.50%-6.00%.
