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Alternative Investment seminar 2016

Alternative Investment Seminar 201​​6

Our annual Alternative Investment breakfast seminar took place on Thursday 28 January at The Kings Fund in Cavendish Square, London. The Alternatives Board was joined by two guest panellists; Renos Booth from Aviva Investors and Zachary Vaughan from Brookfield Property Group.

Jon Neale, Head of UK Research, presented the findings of the annual JLL Alternative Investment survey. Jon confirmed that 2015 was a record breaking year for direct real estate investment into alternatives, with deal volumes over £15 billion representing 25% of all commercial real estate investment in the UK. This is a dramatic rise from five years ago where alternative investment accounted for less than 10%.

The main conclusions drawn from the seminar were:

  • 79% of investors are looking to increase their exposure to alternative sectors by 2019
  • The most in-demand sector was PRS, with 24% of respondents wanting to focus their increased allocation to this
       - PRS is closely followed by Student and Infrastructure
  • Instituitions plan to allocate 25% of their funds to Alternatives by 2019
  • Private equity and hedge funds plan to allocate 29% of their funds to alternatives by 2019
  • Following the stellar year for Student Housing, it is projected that Alternative Investment volumes will fall slightly to £12 billion from £15 billion in 2015
  • Long term stable income streams, good demand / supply dynamics and exposure to structural / demographic changes are some of the main benefits mentioned for investing in alternatives
  • The main challenges include lack of suitable product, operational partners and political / regulatory intervention.
Joe Guilfoyle
Head of Corporate Transactions – Alternatives
Martin Le Grice
Head of Alternative Investment

Investor Overview:

The challenge for alternatives in 2016 will be to bring investment grade product to the market with limited operational risk, but which appeals to those who are seeking lower risk and return profiles. We will see more base and turnover leases, plus the emergence of low risk income strips, which could surpass the £1bn mark.

For institutional investors, pricing will remain strong and constant for prime product with long dated income streams.

2016 will see a focus on the development pipeline, with over a quarter of the investment (both private equity and institutional) into alternatives likely to be development based. This is still below the potential market demand from investors. Developers need to think about incorporating alternatives into mixed use development by using land more creatively.

The opportunity to inject capital expenditure into upgrading stock and thus improve operational performance should boost income growth. Investors will need to have the knowledge and advice as to how to choose the right product and managers in the market place if exposed to the operational / EBITDA cash flow.

2016 will see the more adventurous capital look to Europe as they view that some UK sectors are beginning to mature.