Alternative assets accounted for 28% of all UK commercial real estate investment in 2018, marking a record annual share of the market.
This compares with a 5% slice of total investment in 2009, according to research from Cushman & Wakefield.
Portfolio deals accounted for 57% of alternative investment transactions, with an average deal size of £276m.
Of the total investment volume, London accounted for 40% of investment, and the favoured asset has been hotels – which have accounted for 43% of overall volumes across the UK.
C&W noted that falling lease lengths in mainstream sectors and increasingly competitive yields have ramped up the appeal of alternatives over the past decade.
During the past 10 years, 53% of alternative investment volumes involved a UK owner selling to a foreign buyer.
Greg Mansell, head of UK research and insight at C&W, said: “The investment trends of the last decade have permanently changed the UK real estate investment market. Alternative real estate is increasingly liquid, international and institutional.
“The low-yield environment, short leases in mainstream assets, and investors taking direct responsibility for asset management should ensure alternative real estate continues to develop in the same way it has done over the last decade. These secular trends have great inertia, which should ensure these specialist sectors can produce competitive total returns in the long run.”
C&W also observed in the report that investors ought to focus on the sub-sectors of alternatives, rather than seek a combined allocation approach.
David Haynes, international partner of capital markets at C&W, said: “Investors are seeking better yields and are increasingly prepared to consider a wider range of property types, different financing options, and adjusted risk returns to achieve their goals.
“However, alternative real estate is a convenient catch-all phrase, and the property types included in this group are too diverse to justify a combined investment allocation. Investors should look at alternative property types as distinct specialist sectors that have varied demand drivers and investment traits.
“In the race for quality, portfolio deals have been the most common way to access the best assets and strongest covenants, and the shortening of commercial leases has shifted long income investment into alternatives. We are seeing investors acquiring, or partnering with, dominant operators to quickly gain specialist knowledge and economies of scale.”
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