The significant broadening of the institutional real estate investment universe is a welcome feature of recent years. Societal change, e-retailing and the pandemic, among other factors, has rightly questioned the merit of a strict focus on the traditional sectors of office, retail and industrial.

The new sectors that have emerged into institutions’ investment focus are varied and include infrastructure (such as airports, bridges, toll roads), solar parks, wind farms, hotels, built to rent residential and later-living/care accommodation. The investment rationale for these sectors, apart from initial yields, is growth prospects underpinned by demographic trends and an opportunity to make an ‘impact’ investment – ie, a real or perceived sense of well-being that emanates from an investment that benefits society often of an environmentally positive nature.

It is easy to assume that the usual investment and asset management rules apply to these new      alternative sectors. In some very limited cases, such as a new purpose-built student accommodation (PBSA) asset let on a long lease to a high-quality university, the rules may be similar to the usual underwriting focus on the creditworthiness of the tenant, and lease terms that pass to that tenant all repair and insurance obligations. However, this type of asset is both very expensive, with a low initial yield, and very much the exception to the true operational assets in these sectors. 

To be successful, the investor must have relevant experience of these sectors and understand the asset and operational risks that will impact performance. The successful investor must have a strong sense of the likely evolution of the sector industry and must be financially and strategically aware.