Alternative asset classes attract investment

Institutional capital is carrying the torch for investment in alternative property assets by proactively channelling funds into digital infrastructure, a range of living sector assets, large industrial assets and storage facilities, along with healthcare and medical assets.

Active private capital is mobilised with portfolios diversifying to reduce risk, to capture growth opportunities in emerging asset classes, and to acquire defensive property assets in the face of macroeconomic uncertainties.

Large-scale assets with quality tenant covenants and stable income with structured rental growth, underpinned by land in strategic locations, are gaining attention.

Bayleys national director commercial and industrial, Ryan Johnson says geopolitical and economic flux, and evolving demographic, technological and social trends are supercharging demand for alternative property classes.

“In its Asia-Pacific Outlook Charting New Horizons 2025 report, Bayleys’ global real estate partner Knight Frank outlines the key emerging trends in real estate investment, with digital infrastructure-related assets at the top of that list.

"The APAC region has seen 19.1% compound annual growth in data centre provision, and with demand outpacing supply, there’s plenty of opportunity runway yet to come.

“Globally, ChatGPT has 400 million weekly active users and processes more than 1 billion queries every day. Along with the rise of AI across industries, and a reliance on the internet of things and cloud computing, corporates are also focusing on in-house IT costs and efficiencies, so it’s no surprise that the data centre market is expanding.

“As the world becomes more connected and data-driven, New Zealand is making big inroads to the sector with investment in standalone hyperscale data centres burgeoning. Our reputation as a safe, stable country with sound hydro, geothermal, and wind-driven renewable energy sources means we can offer data sovereignty and operational cost-effectiveness.”

According to global data centre database DataCenterMap, New Zealand now has 54 data centres across 10 regions. NZX-listed investor Infratil recently said it expects New Zealand's growth in data centres to match that of Sydney's, and to double in size over the next five years.

“In the northwest Auckland precinct of Westgate alone, Microsoft, DCI and Amazon Web Services (AWS) have facilities either operational or under construction with renewable energy supply agreements in place,” says Johnson.

“These are hyperscale data assets in a fast-growing commercial and industrial precinct. The level of investment involved demonstrates the confidence seen in the New Zealand market.”

Knight Frank says the living sectors are also vying for investment attention with build-to-rent (BTR), purpose-built student accommodation (PBSA), senior living and co-living projects finding favour, driven by housing shortages, rising student populations, and demographic shifts.

“While Australia’s BTR sector is mushrooming with record volumes of stock coming onstream, New Zealand is lagging somewhat in addressing housing supply via this model,” points out Johnson.

“However, the ‘Overseas Investment (Facilitating Build-to-Rent Developments) Amendment Bill’ was passed here in February, aiming to streamline the consent process for overseas investors interested in acquiring existing BTR developments in New Zealand which could change the game for developers looking to exit their investments.

“Private capital and listed entities are making inroads in the PBSA sector in response to the dire undersupply of modern, affordable student accommodation close to tertiary study facilities, which should help take the pressure off the squeezed rental housing market in main centres.”

In February, Cedar Pacific completed the primary structural framework for its PBSA project on Lorne Street, Auckland with that facility designed to accommodate 758 beds over 18 storeys, and scheduled for completion in October 2025. Last year, Precinct Properties announced it was entering the PBSA sector with the acquisition of 256 Queen Street, Auckland unveiling plans for a circa-$300 million 500-unit tower of up to 30 storeys.

Elsewhere in the APAC region, the senior and affordable housing market are spurring investment, with this seen as an emerging investment asset class due to increased urbanisation.

Growing healthcare needs and technological advancements are driving growth and investment in the life sciences and healthcare real estate sectors, says Johnson.

“This includes biotech research and development facilities, diagnostic facilities, medical office buildings, and hospitals.

“The aging population and other demographic shifts are driving demand for such assets, and its identified as a broader investment class that will pick up pace – and could attract foreign investment.

“This country has a consolidated pipeline of health infrastructure projects that need to be delivered and at the recent NZ Infrastructure Investment Summit, the government indicated to attendees that it is open to public private partnerships in the healthcare space.”

Knight Frank also highlighted the rolling demand for cold storage-enabled property in the APAC region, largely on the back of supply chain dynamics and changes in food-buying patterns.

“It’s a highly specialised asset class and one which is vital to New Zealand,” says Johnson.

“Given our isolated geographical location and an economy founded on the primary sector, our export cold chains are some of the longest in the world requiring finely tuned and high-tech logistics space.

“But outside of the cold chain sector, the storage sector more generally is seen as an alternative investment class that dollars are chasing. With more compact, higher-density housing models with compromised on-site storage being rolled out in urban centres, and with the rise of online businesses requiring inventory storage, conveniently located storage amenity is only going to grow in popularity.”

- Supplied by Bayleys