At the recent In-Out-Alt conference organised by Colliers International in Singapore, 46% of attendees said they were keen to move into or increase their holdings of alternative assets. Senior living was the number one area of interest in the alternative space followed by logistics and student accommodation. The other 54% said, however, that they will stick to traditional assets. 

Andrew Haskins, Colliers’ Executive Director for Research in Asia, said that as property valuations increase across many countries, many global investors are looking beyond their core markets. Funds have shifted capital from major cities to smaller cities and the suburbs, and many have invested in alternative asset classes, he added.

Diversifying into alternative property assets do carry some risks, however, and yields are in general no longer as attractive as they were several years ago, said panellists at a session on alternative investments. In particular, cap rates for industrial and logistics properties and student housing have narrowed sharply in large cities.

Citing an example, one property investor said student accommodation in London are now being offered at cap rates of around 3.5%, down from 5.0%-5.25% when he started looking at the market five years ago.

Operational Hazards

One recurring theme among the senior executives who spoke at the In-Out-Alt conference was the importance of working with an operator who understood the business. 

For instance, there is no single business model that exists globally for properties such as retirement homes and hospitals. Investors and operators need to be sensitive to local regulations and preferences, and operating systems cannot easily be transferred from one country to another.

In niche areas like data centres, tenants had unique requirements such as reliable sources of electricity that could be increased at short notice. Running a data centre therefore required specialised technical expertise that are not easily found.

An executive from a property company said the company relied on local partners for several years before setting up its own platform to manage the student accommodation that it owned in Britain, the United States and Australia.

Hotels Are No Longer About Stars

The importance of having a good operator is perhaps best illustrated in the hotel industry that is being disrupted by new players such as Airbnb and changing preferences amongst customers.

An executive from a large hospitality trust said that unlike in the past when owners and operators thought in terms of physical facilities and categorised hotels as three-, four- or five-stars, the focus has shifted to how a property is positioned in terms of customer experience.

In general, the brands that are gaining a lot of momentum are lifestyle names like CitizenM, 25Hours and Yotel. In Singapore, Yotel commands around S$160 a night for a 14 square metre room, generating a yield that is much higher than what one can get from a traditional hotel that charges S$210-230 for a room twice the size.

Not Easy to Scale Up

Speakers also spoke of the difficulty in getting scale in niche property segments such as healthcare and data centres. For example, there are no core regions where companies prefer to locate data centres which means property funds will have to traverse the globe for new opportunities. Agreeing on a price can also be tricky as cap rates can vary from over 4% to as much as 7.5% depending on the country and the structure of the tenancy agreements.

Mergers and acquisitions are therefore necessary for large institutional investors hoping to enter these areas and portfolios of such assets will come at a premium, a consultant said.

Shared or Complimentary Facilities

In the industrial and logistics space, an executive with a large Singapore company said property owners need to constantly innovate to make existing assets more appealing to tenants. Often, this involves building complementary facilities. 

One current project involves the construction of a shared executive learning centre in Singapore, which will be accompanied by an upscale hotel, Grade-A commercial office spaces and boutique food and beverage outlets. The company also had properties in India that let third party logistic players store goods for up to two years without having to pay import duties, he said.

Being successful in property development and investment involves not just location but what other value the company can offer customers, he added.