Preqin’s Real Estate Online defines the niche property sector as non-traditional property types consisting of student housing, senior housing, medical/healthcare, car parks, self-storage, leisure/entertainment and education. As competition for assets has intensified in recent years, real estate firms have diversified their offerings, resulting in significant growth for the niche sector over the past five years.
Since 2011, the proportion of US private equity real estate (PERE) deal value attributed to niche deals has increased by more than two percentage points. However, in the same timeframe, the proportion of the total number of deals has remained relatively stable. In part, this could be due to a rise in asset valuations across multiple sectors in recent years or a reflection of the increase in appetite for niche property assets and its corresponding effect on the level of competition for assets.
Regarding the sub-types within US niche property:
- Student Housing: The demand for student housing has prompted an increase in prominence within the niche market; 16% of all US niche property deals in 2011 were for student housing, rising to 42% of transactions in 2016, reflective of the relatively low-risk and consistent returns these assets can generate.
- Senior Housing: Deal flow for senior housing has remained steady since 2011; however, demographic trends will likely see senior housing rise in prominence within the real estate market and lead to further participation from private real estate firms for these assets.
The rise in niche property deal value illustrates the growing appetite for the sector and for PERE firms more generally. For example, in October 2016, a portfolio of 19 senior housing assets on the US West Coast were sold by Vintage Senior Living for $1.15bn to Welltower. As competition for deals has intensified, especially for those core and core-plus assets that can offer consistent returns with a relatively low-risk profile, we are likely to see further growth in the sector in the US and globally, as firms look to extract value from the highly priced market.