Investment volumes in alternative real estate accounted for a 42% share of the overall UK market during Q1, a record high for the sector.
Findings by Cushman & Wakefield show that £4.7bn was invested into alternatives during the first quarter of the year, marking a 47% year-on-year increase from £3.2bn in Q1 2018.
These included hotels, residential (held by investors), the private rented sector, student accommodation, care homes and car parks.
Nigel Almond, head of data analytics in the EMEA research division at C&W, said its 42% share of the market has risen from an equivalent of 29% in the previous quarter.
Market share has also significantly increased year on year, compared with a 23% portion of the market in Q1 2018.
A total of £11.2bn of commercial real estate was traded during Q1, around 20% lower on capital flow seen during the same quarter in the previous year.
C&W noted that a lack of stock, combined with Brexit-related caution, saw activity across the mainstream sectors of office, retail and industrial weaken by 39% year on year.
Jason Winfield, head of UK and Ireland capital markets at C&W, said: “Investors are looking more broadly at the real estate market, and while a flight to alternative assets is typically associated with late cycle strategies, the strength of the interest is unprecedented.
“The growing understanding and maturity of alternatives as an asset class is proving to be a significant driver for change. We can expect more fund raising for this type of asset this year as investors seek to capitalise on the opportunities available.”
There has also been an uplift in capital flow from European investors outside of the UK during the quarter, particularly from Belgian, French and German sources of capital. More than two-thirds of this activity focused on alternative assets.
C&W said prime yields on the continent are now lower than the UK, so UK assets represent relative value for those backing its long-term fundamentals.
Almond said: “With the form of the UK’s exit from the EU still to be determined, levels of trading are expected to remain weak over the course of the year as prospective buyers cast a detailed eye over transactions.
“While capital remains in the wings, greater due diligence and a lack of product is likely to stifle activity, with the focus expected to centre on better quality assets in core sectors and continued appetite for alternatives.
“Should we see greater clarity on the UK’s position relative to the EU emerge, we could see the release of pent-up demand and an uptick in activity.”
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