Alternative real estate assets offer growth potential in 2025
Globally, population demographics and lifestyles are changing — with increasing demand for technology and advancements in life sciences contributing to the changing nature of commercial real estate investment in 2025.
By AnsaradaFri Jan 31 2025Industry news and trends, Innovation, Investors
To grow and diversify portfolios, investors need to understand the supply and demand dynamics of the real estate market. Commercial real estate investment performance will likely be driven by asset, market, and sector selection, with active management to drive income growth.
Dealogic data shows that global real estate slowed in 2023 to show the lowest transaction values in a decade and remained flat in 2024. With transaction values just one-third of the average annual value for the past ten years, is real estate worth investing in, and if so, which real estate assets will still perform and grow?
Alternative real estate assets offer potential for investors. Filling the growing gap between supply and demand in the technology sector, multi-family living and student accommodation, aged care, and life sciences, alternative real estate assets offer potential for diversified long-term growth strategies.
Is real estate worth the investment in 2025?
What are alternative real estate assets?
Alternative real estate assets include non-traditional forms of real estate investments. This category is defined by what it is not – residential or traditional commercial properties are excluded.
Examples of ‘real estate alts’ include:
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Student accommodation
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Senior living property
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Healthcare infrastructure like hospitals and specialist clinics
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Self-storage
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Data centres
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Life sciences infrastructure like laboratories and research facilities
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Renewable energy sites for solar and wind power generation
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Build-to-rent housing that is professionally managed for long-term rental
Alternative real estate assets can be bundled into a real estate investment trust (REIT) and traded through a broker. This improves liquidity and allows individual and institutional investors to partially own alternative real estate asset portfolios.
Why are investors interested in alternative real estate?
Alternative real estate assets tend to maintain and grow earnings, even in the face of high inflation and slower economic growth. These defensive characteristics make them an attractive investment opportunity.
When traditional real estate asset growth slows or declines as rates rise and inflation is high, demographic and structural changes improve demand for alternative real estate. These broad societal trends are only accelerating, making investing in alternative real estate a worthwhile longer-term investment.
Operating leases for alternative real estate assets like aged care homes, data centers and self-storage facilities often extend beyond 20 years, providing a stable income stream and diversification in income from a new style of tenant or exposure to a new income stream.
Diversifying investment portfolios in areas of projected growth demonstrates readiness for change and an awareness of the role of real estate investment in a broader geopolitical and societal context.
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What drives the alternative real estate market?
Broad societal changes drive demand for alternative real estate assets. Age demographics, urbanization, technological advancement, and macro growth in consumer markets and household wealth are rapidly changing, leaving these sectors scrambling to catch up. Demand for data centers, renewable power, self-storage, and aged care lags behind supply in many global regions.
While traditional real estate asset demand is driven by white-collar employment and retail turnover, volatile factors with less certainty in the future, especially in the Asia Pacific region, the factors that support alternative real estate demand are broader, longer-term trends with lower volatility and uncertainty in the medium to long term.
Demographics
A report from McKinsey released in January 2025 observes that falling fertility rates and an aging population will mean seniors make up a greater percentage of the population. Demand for aged care and supported living will increase towards 2050. Multigenerational housing may become more desirable with rising dependency. Life sciences and medical offices will also be needed to support an older population.
Lower fertility rates, longer lifespans, and growing urbanization will have a lasting impact on real estate markets. Multi-family residential assets remain in demand despite increasing rents. Smaller living spaces mean self-storage demand will expand and suitable aged care living is needed for an expanding population of retirees.
Student accommodation
The global student accommodation market is estimated at USD 11.34 billion in 2023 and is projected to grow by 5.1% (CAGR) to USD 15.94 billion in 2030 (GWR). Countries including the US, UK, Australia, and Canada remain top destinations for international students, putting pressure on existing student accommodation infrastructure. This trend is expected to continue as the pursuit of global education grows in popularity amongst the expanding middle class in developing countries and the value of obtaining international qualifications increases.
Universities are often unable to meet the housing demands of the growing student population, creating opportunities for private investors and developers to build smart living solutions for tech-savvy student tenants. Purpose-built student accommodation (PBSA) provides an easy solution for students without a local guardian or familiarity with local real estate markets to secure convenient living tailored to their needs,
Build-to-rent
The rising cost of living drives demand for build-to-rent accommodation, where developers build multi-family dwellings and retain ownership to rent out apartments, often using longer-term leases. Already popular in the US and UK, this type of commercial property offers economies of scale in funding with potential for long-term capital gains.
Digitalization
Social media, cloud computing, and now AI technology drive demand for data storage. Data centers are experiencing critical supply shortages in many markets worldwide, with extremely high demand exceeding supply growth (JLL). Despite high completions for construction expected in 2025 in the US, Europe, the Middle East, and Asia Pacific, shortages prevail as AI requirements drive demand.
One-third of the world’s 8,000 data centers are located in the US and 16% in Europe, where investment has increased by 168% annually. An estimated further US $250 to 300 billion will need to be invested by 2030 to meet demand according to the IEA.
Decarbonization
Energy security is a key area of growth, with the IEA predicting that electricity demand will rise in 2025 at the fastest pace in two decades. AI technologies, EVs, and the electrification of buildings all contribute to this shift.
By 2026 it’s estimated that data centers around the world will use 1,000TWH annually, roughly equivalent to the electricity consumption of Japan (IEA).
Life sciences
Since the pandemic in 2020 life sciences companies have been growing, with aging populations, technological advances like AI, and rapid innovation in fields like weight loss driving expansion.
As the number of newly formed life science companies increases so does the need for specialized lab spaces. Like other alternative real estate asset classes, life sciences properties have proven less correlated to economic cycles and individual market conditions.
Growth in life sciences is driven by AI-powered research, substantial funding from Big Pharma, venture capital, government spending, and public markets. Demand for labs and R&D spaces continues to grow as genome sequencing, immunology, cell therapy, gene therapies and new drugs for conditions like Alzheimer’s and obesity propel biopharma growth. Manufacturers are expected to continue to invest to speed up drug discovery.
Companies in this space prefer specialized real estate operators who understand the specific needs and deliver high-quality, flexible lab spaces to support critical research and operational requirements. M&A is likely to continue with biotech and pharmaceutical companies focusing on acquiring smaller firms (EY). Regions where supply trails behind demand for purpose-built lab spaces include the UK, Europe, and the Asia Pacific.
Barriers to investing in alternative real estate assets
While there’s a strong case for investing in alternative real estate assets, the opportunity is not without restriction. Sectors like aged care and data centers are heavily regulated in some markets and myriad requirements must be met for successful operations.
Less mature markets require a better understanding of market fundamentals and operational capabilities. Development may be needed to create new assets of suitable quality to meet demand, requiring operational capabilities that must be either acquired or grown organically.
While build-to-rent is established in Europe and the US, Australia, and New Zealand face barriers of regulatory and planning constraints and regulatory oversight of foreign investment. The 2024 Build-to-Rent Bill received Royal Assent on 10 December 2024 and encourages investment in Australia with tax concessions.
Institutional investors who can rise to these challenges can pursue a growing investment opportunity.
Gain an early mover advantage in 2025
Commercial real estate investments offer stability and diversification to overall investment portfolios. Investments placed in commercial real estate in the immediate aftermath of the Global Financial Crisis (GFC), between 2009 and 2011, achieved positive five-year returns (JLL).
Following the downturn in recent years, a rebound in 2025 is anticipated (WEF), with an early mover advantage that will diminish as the competition for limited assets rises. Real estate investment markets are expected to recover in 2025, in the face of challenges of investing and financing in a higher interest rate environment.
Due diligence is more important than ever in commercial real estate — structure and streamline your process to improve transaction success
Undertaking due diligence on alternative real estate and commercial real estate is more important than ever as the market begins to recover. Moving early may pay off for those who are prepared and confident.
Matching investments with long-term societal changes has the potential to unlock steady returns.
Be ready to capitalize on real estate opportunities in 2025
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