What's the alternative?

There is something faintly pejorative about the term 'alternative'. Be it medicines, lifestyles or facts, the addition of the adjective 'alternative' is often used to imply something that is fringe, lacking legitimacy or, by definition, outside the mainstream.

For a long time, there were suggestions that some regarded alternative real estate assets with a similar level of suspicion. Offices, retail and industrial were the blue chips sectors, and anything outside those relatively narrow lines was lumped together for specialist players to deal with.

The shift in mindset, when it came, probably had less to do with alternatives themselves than the changing fortunes of the traditional sectors. With retail and offices taking considerable hits, and logistics showing the sort of growth normally associated with emerging assets, the distinction between these and altertantives became ever more blurry. It is no surprise that investors became more open-minded about where to increase their exposure.

In today's market there is precious little differentiation. The days of the generalist are behind us, and shops, offices and warehouses need just as much specialisation as living, healthcare and infrastructure. Institutions speak of the need to diversify into new areas, and advisory teams follow clients accordingly. In such a market, with capital chasing all opportunities, can anything truly be described as alternative?

There are some areas where the term remains apt. History and long-term track record are an obvious dividing line, similarly the number of potential replacement occupiers should an incumbent go south. Liquidity too is a consideration, for example with buyer pools for warehouses significant larger than those for healthcare facilities. All of these impact risk profiles and weigh on investment decisions accordingly.

But some assets currently under the 'alternative' umbrella actually have the hallmarks of more established sectors. Build-to-rent may be relatively new, but the residential market is as old as commerce itself. Data centres are complex and have fast-changing requirements, but share some characteristics with big-box industrial and serve a demand for processing capacity that is only going in one direction.

We live in dynamic times, and new sectors will always emerge - some of these will fall back to Earth, while others will achieve escape velocity and become vital parts of diversified portfolios. In an ear when investors will be increasingly comfortable looking beyond the traditional sectors, real estate would do well to avoid broad generalisations and umbrella terms in favour of assessing each asset class on its fundamental strengths. An alternative approach indeed.