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JLL predicts that total returns for Alternatives will exceed 7% in 2017, and will outperform the traditional commercial property market
LONDON, Friday 27th January 2017 - Alternative transactions totalled £12.3bn in 2016, which was in line with JLL’s prediction at the beginning of 2016. With total commercial property volumes at £45bn in 2016, alternatives made up 29% of the market.JLL also published the results of their
alternative investors survey for the fifth consecutive year, which was the largest ever undertaken. Across all sectors the majority of respondents expect yields to remain stable or harden further in 2017, with some investors expecting yield compression in selective markets of more than 0.5%. According to the survey, over 70% of respondents either plan to increase their allocation in the sector by 2020 or are fully exposed to their respective alternative sectors.Portfolio sales made up 40% of the market, where premiums persist in return for the ability to purchase assets at scale. North American investors were the largest portfolio buyers last year, and also made up 25% of the capital flows into UK alternative markets. The research also found that the biggest opportunity for investors and the greatest challenge to increasing market share was a continued lack of supply.Ollie Saunders Lead Director of JLL’s Alternatives team, commented: “As the alternatives market matures, investors are gaining greater confidence in the resilience of the sector as the market becomes more transparent. Alternatives had a year in line with expectation in 2016, despite the wider political and macroeconomic conditions that emerged, putting them on a strong footing for 2017.
Predictions for 2017 by sectorStudent HousingJLL predicts £3 billion of transactions in 2017, with an increased focus on cross-border portfolios. Sovereign wealth, institutions and large family office investors will come into sector from across the globe.Private Rented SectorBetter levels of supply in 2017 will help meet pent up demand. More overseas capital will invest with increased chances of American multi-family operators establishing a foothold in the UK market. Yields in the sector will continue to move inward as rental income streams are more proven.Retirement LivingThis is a sector of key focus for alternatives investors. There is a major opportunity to target the upper and mid markets which are the largest in terms of potential demand, but the most undersupplied.HealthcareThere will be a greater focus on development, as much of the existing care home stock fails to meet modern requirements. The biggest issue facing the sector is social care funding, and the pressures associated with operators reliant upon public pay patients.Leased HotelsWe expect to see a large number of new operators try to establish a foothold in the UK market and this will help maintain strong transaction volumes this year.Self Storage2017 will see strong M&A activity with over £250 million of transactions helping to build portfolios of scale. JLL expect to see an increase in the number of specialist investors looking to get a foothold in the more established UK market.Data CentresThe growth of data in recent years has driven growth in the sector. JLL predicts that investment volumes in the UK will increase by 20% in 2017.Car ParksTechnology and the move to ultra-low emission vehicles will see operational changes strengthen revenues. The scarcity of stock means yields will continue to harden as investors target the sector.
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