As global interest rates have fallen, the real estate sector has seen a notable shift, providing a unique opportunity for investors seeking to diversify and position their portfolios for future growth. With valuations of traditional real estate assets adjusting significantly, now may be an ideal entry point for those seeking long-term exposure to this asset class. However, the next decade of real estate will look different from the past 40 years, with emerging sectors driven by global megatrends poised to take center stage.
Emerging Sectors Driven by Secular Trends
For decades, office and retail real estate dominated global property markets. However, the next 10 years will likely be shaped by a different set of opportunities, driven by long-term structural trends such as aging populations, healthcare innovations, and technological advancements.
Aging Populations and Healthcare Demand
One of the most significant megatrends impacting real estate is the demographic shift in advanced economies, where aging populations are leading to increasing demand for senior housing, care facilities, and medical offices. This shift is less dependent on the broader economy and more driven by population dynamics, offering greater resilience and stability for real estate investments in these sectors.
Senior Residential Housing and Care Facilities: As life expectancy increases and birth rates decline, the need for healthcare-focused real estate, including senior housing and long-term care facilities, will rise. These sectors offer long-term demand drivers, regardless of short-term economic fluctuations.
Medical Offices and Outpatient Care: Real estate tied to outpatient care facilities is also growing, driven by the ongoing evolution of healthcare delivery toward outpatient and home-based care. The demand for medical office space and healthcare real estate is expected to remain strong as healthcare systems adapt to aging populations.
Alternative Real Estate Sectors
In addition to healthcare real estate, other alternative property types are increasingly attractive. These sectors include:
Self-Storage: With people holding onto more possessions and increasingly mobile lifestyles, the demand for self-storage facilities continues to grow. These types of assets generally have lower maintenance costs (around 13% of operating costs) compared to traditional commercial properties (around 20%).
Manufactured Housing: As housing affordability becomes a growing concern in many advanced economies, manufactured housing has become an attractive solution, offering more affordable living options without sacrificing quality.
Data Centers: Data centers are one of the fastest-growing property sectors globally, driven by the explosive growth in online content, big data, and cloud migration. In the U.S., data center power consumption is expected to reach 35 gigawatts by 2030, up from 17 gigawatts in 2022.
Data Center Growth in Asia Pacific
While North America and Europe have led in data center development, Asia Pacific is now emerging as a key growth area. With a young, digitally connected population and rapid urbanization, the demand for data storage in the region is set to accelerate.
Asia Pacific Data Center Market: The data center colocation market in Asia Pacific is projected to grow at a compound annual growth rate (CAGR) of over 13% through 2026, outpacing the 7% growth forecast for North America and 12% for EMEA (Europe, Middle East, and Africa). This rapid expansion is driven by increasing internet penetration, mobile usage, and the rise of tech giants in the region.
Benefits of Allocating to Emerging Real Estate Sectors
Investors who adjust their portfolios to include these emerging real estate sectors stand to gain from a variety of benefits:
Enhanced Diversification: Alternative real estate sectors, such as healthcare facilities, self-storage, and data centers, are generally less correlated with traditional office and retail properties. This diversification can help mitigate risks and provide more stable returns, especially during periods of market volatility.
Superior Resilience: Many alternative real estate sectors are driven by long-term, structural trends that are not dependent on short-term economic growth. This can make them more resilient during economic downturns, providing a steady income stream even in times of broader market uncertainty.
Lower Maintenance Costs: The operational costs of maintaining alternative real estate assets tend to be lower than traditional properties. For example, the cost to maintain self-storage and manufactured housing facilities is typically 13%, compared to 20% for traditional office or retail spaces.
Conclusion
As the global interest rate environment improves and valuations adjust, now is a prime time for investors to consider emerging real estate sectors that are aligned with long-term, secular trends. Real estate tied to aging populations, healthcare advancements, and technology innovations presents a compelling opportunity for future growth, while offering enhanced diversification and resilience.
The rise of alternative property types such as self-storage, manufactured housing, and data centers will likely dominate the next decade of real estate. With Asia Pacific’s data center market poised for rapid expansion, global investors are well-positioned to benefit from these structural shifts in the real estate sector, driving potential returns that are less reliant on broader economic cycles.
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