Specialized Asset Classes Attract Growing Share of Investor Capital

Investment in specialized asset classes like lab and life science, cold storage, and medical office has risen significantly as the lack of opportunities in traditional options like industrial and multifamily has driven interest toward niche alternatives. 

A new report from Colliers shows that VC spending (at a record high), COVID-19 research and an uptick in IPO activity have sent prices higher in the office and industrial lab sectors. The latter is currently focused in Boston, San Francisco, and San Diego, though it’s gaining momentum in places like Raleigh/Durham, New York City, and Seattle.

“The last mile of food” is the “next frontier” for cold storage, according to Colliers, a trend that’s driving big interest from institutional investors.

“While suppliers are still early in the optimization of moving product from bulk cold storage to consumers’ homes, increased infrastructure has driven pricing on new modern cold storage buildings close to that of modern dry buildings, assuming similar credit and term,” the report notes.

And in the medical office subclass, fundamentals remain strong as rents continue to rise. Institutional investment in the asset class comprised 35% of medical office sales in the early part of this year, a 12% increase from pre-pandemic levels.

Another bright spot this year: single-family home rentals, which have benefited from low interest rates and the skyrocketing cost of homeownership.

“Pandemic lockdowns and work-from-home requirements have further pushed the desire of single professionals and families for more space,” the report notes. “Single family rentals, larger unit sizes and remote locations have become key commodities.”

More groups have begun investing in SFRs, which has caused pricing and sales volumes to push up. In response, “developers have taken notice and are planning for the next wave of construction by acquiring appropriately zoned land and development sites,” according to Colliers.

A recent report from Walker & Dunlop predicts single-family rental growth is expected to outpace multifamily, office, retail, storage, and hospitality growth by 2022. The firm estimates the SFR market to be valued at around $3.4 trillion, a number that’s close to the value of the entire multifamily market, at $3.5 trillion. 

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