Cushman & Wakefie

Greer McLeod

The conventional domain of commercial real estate in Australia has experienced a profound transformation, giving rise to a burgeoning landscape where alternative real estate sectors flourish. These diversified avenues present an array of investment prospects primed for corporate exploration and strategic growth initiatives.

While traditional core sectors remain relevant, there is an undeniable interest in alternative real estate, which offers a diverse range of investment opportunities. Australian alternatives include both niche and rapidly growing sectors like the living, healthcare, data centers and agriculture spaces.

Amidst persistent economic challenges, many alternative sectors are highly resilient, showcasing an advantage over core sectors grappling with significant structural shifts such as work-from-home habits and online shopping. In many instances, this strength underscores the attraction of alternatives compared to the core sectors.

“While traditional core sectors remain relevant, there is an undeniable interest in alternative real estate, which offers a diverse range of investment opportunities.”

Following global trends, Australian living sectors continued to witness significant investor interest compounded by supply shortages across the broader residential market. Unlike more mature markets such as the U.S., where living (primarily through multi-family mandates) forms a key pillar of core portfolios, living circumstances are still largely regarded as an alternative investment in Australia. This is mainly due to the relatively constrained investable universe at present.

The developing build-to-rent (BTR)—the equivalent of multi-family in the US—market is positioned as a leading pillar in the living sector. As structural shifts such as urbanization and delayed household formation continue to shape how we live, the BTR model has emerged as a solution tailored to meet the evolving needs of Australians. Our confidence in the sector’s growth trajectory remains elevated, with consistent and high levels of interest from investors and developers alike.

Furthermore, the growing comfort exhibited by banks toward the sector signals a maturation that bodes well for its future growth and scalability.

As the resurgence of international students returning to Australian shores gains momentum, the demand for Purpose-Built Student Accommodation (PBSA) surpasses the available supply. PBSA rental rates persist at historic highs, with projections indicating further escalation in 2024 and 2025, especially as the broader rental supply remains constrained.

With rental pressures anticipated to persist alongside the rising number of international and domestic students seeking housing, there arises a pressing need for additional on-campus and off-campus opportunities. These student accommodations need to be ideally fostered through strategic partnerships with universities to unlock housing provision in key locations.

Additionally, Australia’s shifting demographic landscape, characterized by the increasing aging population, serves as a key demand driver for senior living sectors. Cushman & Wakefield estimate a need for up to 6,300 retirement village units to be completed annually until 2061 to meet projected demand and maintain current penetration rates.

Furthermore, in response to this demand, manufactured housing estates (MHEs), also known as land lease communities (LLCs), have emerged as an increasingly attractive option for investors and consumers. This sector offers a more affordable nature compared to traditional retirement village structures, making it an attractive alternative for retirees seeking a quality living product without the complexities of the traditional DMF (deferred management fee) retirement model.

As Australia's commercial real estate landscape undergoes continual transformation, the appeal of alternative sectors steadily grows. While challenges across capital markets may linger more broadly in the first half of 2024, Cushman & Wakefield expects transaction activity to rise in the second half and beyond. These changes will particularly occur when global interest rates stabilize and the rate-cutting cycle eventually begins.

Notably, the scarcity of quality investment opportunities across the alternative market is expected to act as a stabilizing force, mitigating any further substantial softening in market values. As detailed in the Cushman and Wakefield Australian Alternatives Outlook 2024 report, we anticipate a resilient alternative real estate market that will grow in size and relevance for global capital. This growth is directed to those who have an ongoing appetite for strategic investments in the alternatives sector.