As deals in traditional real estate in Australia crater, those within niche real estate, which include data centers and student accommodation, are on the rise.
February 11, 2025 (Preqin News) – Despite a downturn in traditional real estate segments like residential properties and office spaces in Australia, a new trend is gaining momentum: niche real estate.
This specialized segment has seen remarkable growth. The aggregate value of niche real estate deals more than quadrupled from $0.4bn in 2019 to $1.9bn in 2024, with deal volume climbing from 21 to 48 during the same period, according to Preqin data.
In contrast, traditional real estate transactions have significantly declined, with deal numbers dropping from 325 in 2019 to 178 in 2024. The total aggregate value of real estate deals in Australia plummeted from $28.8bn in 2019 to just $8.0bn in 2024. The sector has been hit by economic concerns as well as those about interest rates, valuations, and the use cases for traditionally active segments such as office and retail. This shift in Australia mirrors the global trend, with investors increasingly interested in specialized real estate for resilience and the potential for value creation.
Australia real estate aggregate deal value and proportion of niche deals, 2019–2024
Source: Preqin Pro. Data as of December 2024
Fabian Liaw, a Sydney-based real estate investment specialist at Keppel, a global asset manager and operator with capabilities in infrastructure, real estate, and connectivity, told Preqin News that the pandemic has accelerated structural shifts in traditional property sectors: ‘The office sector, traditionally a cornerstone of real estate, is obviously going through a structural shift. Since the pandemic, corporates and businesses are re-assessing their long-term space requirements, with hybrid working contributing to the demand for more flexible and third spaces.’
These changes extend beyond office spaces. Liaw points out that societal shifts, such as those driven by an aging population and technological advancements, are transforming other sectors as well. ‘The demand for aged care and more private hospitals to alleviate the strain on public healthcare systems make these sectors stable and secure investments,’ he explains. ‘Global pension funds and Australian industry super funds are naturally aligned in making these longer-term investments, sometimes in partnership with the government, whilst also benefiting their members.’
Niche real estate refers to specialized property types tailored to emerging or specific demands, and includes data centers, self-storage facilities, senior housing, student accommodation, life sciences properties, and rentals.
These properties may be attractive due to some unique growth drivers and the potential for resilience against economic cycles. For example, data centers and student accommodation are driven by specific demand growth that is less correlated to the economy. In other niches, underserved markets like senior housing or life sciences properties align with long-term demographic trends, sustaining demand despite economic fluctuations.
Niche sectors can be less competitive, enabling more favorable pricing and growth potential for early adopter investors. In addition, many niche assets support ESG objectives. Examples include energy-efficient data centers and housing projects promoting social well-being, such as those backed by the National Disability Insurance Scheme in Australia.
Sydney and, increasingly, Melbourne dominate Australia’s data-center sector. ‘With data-center investments, the procurement of power, especially from cleaner energy, and water are just as fundamental as securing the sites. That plays into the other alternatives sector – infrastructure, where Keppel has deep operating capabilities,’ says Liaw. As demand for AI and data storage grows, so does the need to power data centers, upping energy requirements.
‘Data centers are experiencing critical supply shortages in many markets around the world, with extremely high demand exceeding robust supply growth,’ real estate services company JLL said in its Global Real Estate Outlook for 2025. While the company believes construction in 2025 will increase in North America, Europe, and APAC, there will still be shortages, ‘such is the growing demand for data centers, boosted by AI requirements, that even this increase in supply will be only a fraction of what the market needs.’
Another area that is getting attention is purpose-built student accommodation (PBSA), which caters to Australia’s rising international student population. According to the Australia Department of Education, the number of international students studying from January to September 2024 increased by 11% from the same period the year before, taking the total to 824,951. Student accommodation facilities offer tailored amenities like study spaces and recreational areas, and have stable occupancy rates.
And this shift is not just in Australia. ‘Market dynamics, digital innovation, and sustainability factors are triggering structural changes in real estate, evidenced by the widening of real asset classes from the traditional five (retail, industrial, multifamily, hospitality, and office) to higher-growth sectors, including student housing and data centers,’ writes Tim Bodner, Global Real Estate Deals Leader, Partner, PwC US, in the professional services firm’s Global M&A Trends in Real Estate.
PwC said the changing real estate dynamics are attracting a range of non-traditional investors, such as high-net-worth individuals, family offices, private credit, sovereign wealth, and infrastructure funds, who have stepped in to fill the funding gap left by traditional bank and insurance investors pulling back.
Liaw also highlights the evolving valuation of niche assets, explaining that although now people are pricing in risk premiums, this is ‘becoming a thing of the past’ and that there is increasing clarity over pricing as more transactions occur. This increasing transparency is fostering investor confidence, which could drive further growth in niche real estate.
However, there are still challenges and risks to niche real estate investments. For instance, smaller niche markets can be less stable and harder to exit, with fewer buyers compared with traditional assets, so investors face risks with market instability and illiquidity. As a newer category, niche real estate also lacks extensive performance metrics, requiring reliance on forecasts that may not align with market realities.
Furthermore, there are some operational challenges. Managing niche properties requires specialized expertise, which increases the complexity of these assets, while regulatory uncertainties pose a separate set of potential risks.
Despite these challenges, the rising interest in niche real estate, marked by increasing deal value and volume, highlights its potential as a promising alternative in an otherwise difficult market. The steady rise in the number and value of deals underscores niche real estate's role as an increasingly important component of Australia's evolving real estate landscape.
Mira Dilek is an Associate in Preqin’s Private Capital Fund Manager Data team and is based in Sydney, Australia. Manav Shah is a Senior Associate in the Data Quality Assurance team, based in Bengaluru, India. Preqin has 15 offices across the globe and a team of over 500 researchers. It combines technology and relationships built over 20 years to gather proprietary and public data on the alternatives assets market.
The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.