Emerging real estate sectors tied to long-term global megatrends like aging populations across advanced economies, healthcare trends, and technological innovation, offer investors an asset class less reliant on economic growth and one that could offer potential returns driven by structural shifts.
This shift coincides with a changing of the guard in terms of product structure as a new generation of products targets the operational requirements of wealth managers.
Emerging sectors tap into growing secular trends
The next decade of real estate will look different to the previous 40 years which had been dominated by office and retail. Now, as the cost of debt is coming down and valuations are probably near a bottom, opportunities emerge from alternative real estate sectors.
The aging population, rising life expectancy and declining birth rates in advanced economies are one example of trends steering changing demand patterns for care facilities, senior residential housing and medical offices.
Alternative property types, which include self-storage, manufactured housing and outpatient care facilities, are thus favorably positioned for future resilience and outperformance as their fundamental demand drivers rely less on economic growth and more on long-term tailwinds. One of the biggest drags on real estate returns is the cost of maintaining a real estate asset. On average, these costs are lower for alternative sectors (13%) than traditional real estate sectors (20%)*.
Future real estate portfolios that allocate to alternative property types could not only benefit from enhanced diversification, but also from superior resiliency. Growth in data centers is another emerging trend driven by rising consumption of online content, big data, and companies migrating their data to the cloud. In the US market, demand — measured by power consumption to reflect the number of servers a data center can house—is expected to reach 35 gigawatts by 2030, up from 17 GW in 2022, according to McKinsey analysis.
While data center development in Asia Pacific currently trails that of North America and Europe, Asia Pacific growth prospects are underpinned by rapid population growth and a young demographic. The Asia Pacific data center colocation market is estimated to expand at a compound annual growth rate of over 13% by 2026, outpacing growth rates of 7% in North America and 12% in EMEA.
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