In a turbulent year with overall U.S. commercial real estate volume decline, increased activity in some alternative property sectors was a bright spot for the industry. Alternatives like self-storage, life sciences, manufactured housing communities, medical office and data center assets were collectively responsible for more than $47.9B in transaction volume in 2020, bringing these non-traditional real estate assets more into focus as investors sought yield.
While some of this demand is accelerated due to the pandemic, there is evidence that it is more than a passing phase. Alternatives, which also include student housing, cold storage and single-family rental, are benefiting from increased investment demand now for a variety of reasons. In the past when the industry faced challenges, investors shifted to the alternatives, but this time might be different. Large institutional investors are increasing allocations, causing more liquidity across the space. Additionally, more established operators are entering the space.
When you look at the size of the alternatives individually, the different asset classes are smaller in transaction volume scale than their traditional counterparts; however, they are growing rapidly. They also offer investors an opportunity to diversify their portfolios along with opening the door to investors looking to enter commercial real estate ownership.
Each sub-class within alternatives showed varying levels of resilience throughout 2020 but they all share positive outlooks for continued growth. (Source)